U.S. Dollar Decline in 2018: Trump & Gains in Euro Put Greenback at Lowest Level in 3 Years

U.S. Dollar Decline in 2018
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U.S. Dollar Decline in 2018

The U.S. dollar decline in 2018 has already begun following 2017, the first full year of Donald Trump’s presidency and the currency’s worst year since 2003. The greenback’s value has already fallen two percent this year and is now trading at its lowest level in three years. Meanwhile, Europe’s economy shows signs of improvement, leading to gains in the euro as investors jump ship. In fact, as of this writing, the euro accounts for over half the weight of the Dollar Index at 0.576. In comparison, the runner-up, the Japanese yen, accounts for 0.136.

The Dollar Index, maintained by Intercontinental Exchange Inc (NYSE:ICE), uses the greenback as the base currency against a basket of six major world currencies. Besides the euro and yen, the ICE Dollar Index also compares the weights of the Canadian dollar, British pound, Swiss franc, and Swedish krona.

With the euro accounting for over half the weight of the ICE Dollar Index and Trump’s deglobalization plans sparking additional fears as the president tries to distance America from the global economy, the U.S. dollar’s decline doesn’t look to be halting anytime soon. Here’s a deeper look at why.

Trump’s Chaotic Administration Has Undermined Confidence in the U.S. Dollar

One major factor in the U.S. dollar’s decline is President Donald Trump. Trump’s foreign policy, namely his “America First” initiative, could see the U.S. dollar playing a smaller role on the global stage. It also doesn’t help that the 2007-2008 global financial crisis and recession can be traced back to the U.S., specifically the bursting of the country’s housing market bubble.

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Steven Barrow, head of G-10 strategy at South Africa’s Standard Bank Group Ltd, even went as far as to say that Trump’s deglobalization plans to make the U.S. more competitive with its biggest trading partners “is consistent with, at best, benign neglect of the dollar and, at worst, a clear desire for dollar weakness.”

Of course, Trump’s administration already has its hands full with the president and his impact on the U.S. dollar in the global economy. Trump constantly picking fights with other world leaders, in addition to his other administration issues, has further hurt global confidence regarding the greenback’s present and future value.

Not only has Trump gone after allies, including Germany and Australia, but he’s been at constant odds with Kim Jong-un and North Korea. Making enemies of friends and potentially starting a war has proven more than enough to harm the currency’s standing with the rest of the world.

U.S. Dollar Sees Decline of 10% in 2017

The two-percent U.S. dollar decline in 2018 mentioned above comes after a 10% decline of the ICE Dollar Index in 2017. Keep in mind this drop occurred despite the U.S. Federal Reserve performing interest rate hikes all year, which usually help raise the dollar’s value, and two strong quarters of growth in the U.S. economy.

Besides Trump, the other major reason for the U.S. dollar’s decline in 2017 was the euro’s contrasting gains last year. 2017 was the best economic year the eurozone had seen in over 10 years, with France and Germany, in particular, showing an increase in strength. The U.S. dollar’s year-to-date performance compared to the euro on the ICE Dollar Index in 2017 was down 12.4%.

Further, with the revitalized euro and overall growth outlook for the eurozone, many investors are counting on the European Central Bank to begin closing out its bond-buying program ahead of schedule. The Fed had a similar program following the 2007-2008 global financial crisis.

 

Sources:

Why the U.S. dollar isn’t so mighty anymore,” CNN, January 15, 2018.

The dollar is languishing at its lowest level in three years,” Quartz, January 15, 2018.

ICE Futures U.S.:U.S. Dollar Index Contracts,” ICE Futures U.S., June 2015.

Is Trump Killing the Dollar?,” MarketWatch, August 31, 2017.

The US dollar just had its worst year in more than a decade, and 2018 will bring more of the same,” Quartz, December 30, 2017.

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