The US dollar falling is partially due to political issues and partially to rising foreign currencies. The gains made during the early days of the Trump administration were lost for a number of reasons. Pressure was put on the dollar with the dismissal of James Comey as FBI director and the current political turmoil in Washington. Another issue is the strengthening of the euro. This weighs more in terms of its effect on dollar value than any other world currency.
A 2% drop in the dollar index is significant, bringing it down to its lowest level since the presidential election. The initial euphoria over the election of Donald Trump has abated somewhat due to a perceived political risk in the capital. Not only that, but the euro gained over 2.5% over the past week. Friday’s increase of 0.95% to $1.125 saw the euro reach its highest level since February of last year.
The dollar fell against other currencies: down 0.65% against the Swiss franc and 0.3% down on Japan’s yen. While the euro reached its highest since February 2016, the dollar reached its largest weekly percentage drop since the same month.
The dollar is significantly affected by White House news. The latest adverse news was a report suggesting that an advisor to the president was the latest person of interest relating to the Trump-Russia issue. The activities of the president in regard to Russia are having a negative impact on the strength of the dollar.
However, the effects of a weakening dollar are not all doom and gloom. Businesses with significant overseas presence will benefit from a weakened dollar. An increase in earnings has been reported by many S&P 500 companies that rely largely upon overseas operations. This increase averages 13.2% for those businesses not depending on the energy sector.
For those firms depending on US revenue for half or more of their income, the increase was only 10.6%. Purely domestic businesses suffered. So with the US dollar falling, many US companies operating overseas will benefit according to the proportion of their total business is carried out using foreign currency.
Fundamentally, political issues are driving the dollar down against foreign currencies. Currencies linked to oil, such as the Colombian and Mexican peso, and the Russian rouble, all gained against the dollar by around 1% or more. While a strengthening euro certainly contributes to the weakening dollar, more stability in US politics would make a significant difference.
However, there are rumors that president Trump prefers a weaker dollar. This would enable the US to export more and to benefit from its operations overseas. So is Donald Trump bothered much about this situation? With the US dollar falling, exports and overseas business woud generate more income. One negative of this would be increased prices of American goods in overseas markets. It’s going to be an interesting few weeks.
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