Summary
In this edition
The dollar fell by around 10% this year, as on 22 July, mainly due to uncertainty over President Trump’s trade policies and concerns over US debt and fiscal deficit.* Issues like the political pressure on the Fed to cut rates aggressively have also weighed on sentiment. Traditionally, US assets are considered safe havens partly because of the credibility of US institutions, stable policies and exceptional US growth. However, Trump’s use of US leadership in global finance to further his ambitions on trade is creating uncertainty. The recent agreement with Japan lowered the tariff rate on Japanese exports compared with what was previously feared. But there is a risk that US consumers or companies will bear the higher cost. This may affect domestic consumption and eventually growth, opening up opportunities across different regions.
Highlights
The dollar declined so far this year due to expectations of rate cuts by the Fed and concerns over deteriorating government finances.
The US-Japan trade deal led to some stabilisation in the dollar and prompted a recovery in Japanese equities.
The dollar weakness could continue amid the country’s high financing needs, but this may not be a linear trend.
Key dates
30 July Federal Reserve Interest | 31 July Bank of Japan Interest |
01 Aug US Unemployment Rate, Euro Area Inflation Rate YoY |
* Excess of government expenditure over revenues.
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