The second week of 2017 was not a great one for the US Dollar. Despite hitting record highs following the election of Donald Trump, the first weeks of 2017 show the dollar behaving the way many assumed it would immediately following the election of Donald Trump. Though markets were shocked by the Trump win, investors chose to be optimistic about Trump’s economic policy, assuming the President Elect would be pro-Markets, relax regulations and incite economic growth.
Unfortunately, at Donald Trump’s news conference this week, his first in six months, no mention was made of his future plans for the U.S. economy. The lack of communication regarding economic policy has worried investors, with the dollar taking a hit following the news conference. Slight gains were made back today, following positive retail data, but the gains were not strong enough to make a large difference. The dollar continues to trade near one-month lows, despite the slight improvement.
The bad news was not unique to the dollar. The British pound fell to a three-month low against the US dollar this week, though it gained back some momentum toward the end of the week. The pound's performance is of little surprise, as markets struggle to recover from the surprising of Brexit.The Euro remained relatively unchanged against the dollar this week, though it did make small gains on the pound. Economists still believe that the Euro will reach parity with the US dollar at some point this year, due to uncertain political climates, so it will continue to be a pair to watch.
Commodities Drive Australian Dollar and Canadian Dollar
Not all major currencies performed poorly this week. Both the Canadian dollar and the Australian dollar have continued their high streaks, thanks in part to strong commodity performances. Australia’s economy, strongly driven by iron ore, has been high performing for the last several months. Some economists believe that Australia’s dollar is simply being recognized for its real strength and was previously undervalued.
The Canadian dollar continues to perform strongly, driven majorly by its strong link to oil. Economists believe the strength of both of these currencies will continue for quite some time, showing us, once again, that the only predictable thing about the FX markets is its unpredictability.Learn more about how politics can influence the FX markets in our pre-Election report about Trump, Clinton and the Dollar.
