The dollar has now fallen to its weakest level since January 2015, reflecting the market’s growing lack of confidence in the ability of President Donald Trump to implement his proposed agenda of tax cuts, deregulation and infrastructure.
The greenback’s sluggishness reflects two main factors, says Andrew Brenner, head of global fixed income at National Alliance Capital Markets.
“First and most important is the [differential] acceleration of economies,” he told Business Insider. “While the US economy is ok, it is decelerating and the Federal Reserve has already begun to tighten and will reduce balance sheet. The European economy is getting stronger, while the European Central Bank is not planning to cut back until year end, and even then, they will still be adding stimulus, albeit at a slower rate.”
Second come political factors, according to Brenner. In a way, Donald Trump’s election may have helped stabilize Europe by galvanizing electorates squarely against populist right-wing candidates in countries like Holland and France. This gives the euro another added boost at the dollar’s expense.
“Europe is stable at the moment, while the US has multiple issues and no discernible ability to get legislation passed,” Brenner said. “The debt ceiling and budget ceiling are major issues that are making markets nervous. And while stocks are holding on, the dollar is weaker and weaker.”
Trump has threatened to shut down the US government next month if Congress does not provide funding for his proposed border wall, which he has repeatedly said Mexico would pay for.
Like currencies, the bond market has also remained skeptical of Trump’s ambitious economic goals — both their ability to pass legislative muster or boost economic performance. Treasury yields have remained historically low, despite rallying equity markets and tighter monetary policy from the Fed.