We’ve reached the halfway point of 2017, and we’re taking a whirlwind tour of the key events in H1 that have impacted the US dollar. After all, you can’t move forward without looking back.
After surging to a 14-year high in December, the USD has had a pretty dismal six months. Disappointing data out of the US and doubts about President Trump’s capacity to push his pro-growth agenda have hit the dollar hard.
Based on our day to day dealings, we’ve mapped out how the dollar has fared against our top 8 currencies over the last six months.
As you can see from our chart, there is one underperformer in our scopes: the British pound.
What has been driving these moves?
The Trump trade debunked
We saw a strong dollar rally heading into 2017. Promises of policies that boost the economy – like infrastructure spending and tax cuts – fueled buoyant optimism in financial markets.
Yet, as we stepped into the limelight of a new administration, the dollar trade began to unwind. As Washington continues to struggle to pass legislation, the belief of a quick introduction of policies that would boost the economy have evaporated.
The question that now stands: can Washington deliver on key campaign promises? We would need to see meaningful progress on that front to reinvigorate the USD.
Not one, not two, but three?
So why is the pound weaker than the greenback?
Heading into what was cheekily dubbed “the year of politics”, we anticipated two key elections in Europe. Following the resounding victory of the populist movements in the Brexit vote and US elections, right candidates threatened to upend things in the euro area. Moderate victories in the Netherlands and France calmed investor fears of political turmoil, but Britain threw a curveball from the sidelines.
Fresh from a long Easter holiday, UK Prime Minister Theresa May called for a snap election. Taking her small majority to a general election, May hoped to garner a stronger lead in Parliament and bolster her position in the Brexit negotiations. Sadly, her plan backfired.
May left the vote without an outright majority in Parliament. Forced to align with a smaller party, the Prime Minister struck an alliance with Northern Ireland’s DUP in order to lead a minority government. Casting a long shadow over Downing Street, May will have to balance keeping domestic elements happy and lobbying for a strong position in the split with the European Union.
With another 6 months left and more questions than answers, we encourage our clients to consider whether these moves could impact them. World First offers solutions to help manage your currency exposure.
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