E The U.S. Dollar Continues To Perform Consistently, But What Does 2017 Hold In Store?

Thanks to Donald Trump's fiery rhetoric and polarising opinions on immigration, it is hard to recall even the mention of economic policy during the property magnate's campaign. When he did talk about America's economic reform, he spoke loosely and without conviction, although it is widely believed that the former Apprentice host favours a slightly weaker dollar and more competitive exports to international markets.

With this in mind, many would have expected that the U.S. Dollar (USD) may have depreciated since Trump's inauguration, particularly given the chaos and uncertainty that has marked his first month in office. This is not the case, however, as the USD continue to perform robustly and within an elevated range, as it continues to dominate ailing currencies such as the pound (GBP) and the Euro (EUR).

The Dollar Holds Strong, But What is Driving This?

Of course, it can be argued that the strength of the USD has largely been derived from the weakness of other currencies. FxPro recently quoted the GBP/USD exchange rate at 1.2418, for example, with the pound taking another direct hit as British Prime Minister Theresa May prepares herself for another Scottish independence referendumThis will create further uncertainty in the UK, especially with Brexit negotiations scheduled to begin towards the end of March.

These factors have combined to hinder the pound, ensuring that it remains trapped in the middle of the range that it has traded against the USD since the beginning of February. With currencies such as the EUR and the Australian Dollar (AUS) having also depreciated significantly at the beginning of the year (although the latter has since rebounded), the strength of the USD must be placed in the context of how other major derivatives are faring.

So What Is Next for the USD?

With a quiet European economic calendar unlike to alter this scenario anytime soon, the immediate future for the USD appears to be bright. Even upcoming data releases such as the U.S. Durable Goods Orders report and Pending Home Sales are unlikely to have a direct impact on the performance of the USD, as the attention of traders remains firmly fixed on the White House and Donald Trump's scheduled address to Congress later in the week.

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Abe Jouejati 4 years ago Contributor's comment

Marcus Turner Jones

Good insight. It is definitely important to consider all aspects of the economy when analyzing the $USD. I think that the $USD will appreciate for some time, however, some of Trump's economic policies will counter this effect, yielding zero-sum. The dollar always tends to normalize, imports and exports should be regulated for this period of volatility and deregulated after the end of the cycle.

Considering the instability in Europe and the ECB, how sensitive will the market be to monetary initiatives implemented by the ECB? Do you think that the US should intervene at the moment or shall the market play its part?

Marcus Turner Jones 4 years ago Author's comment

Hi Abdullah, many thanks, glad you liked it.

I'd say we probably won't see many initiatives implemented by the ECB for the foreseeable future given the 'wait-and-see' policy that seems to have shrouded Europe given the current instability. You raise a very good question though and one I'd like to cover in more depth, I'll let you know when I publish the piece in a couple of days!