Dollar Wobbles under Economic Worries, Euro Remains Favourite

Currency Markets Shift as Dollar Weakens Amid Trump’s Trade Policies and Soft Economic Data

Dollar Index Hits Five-Month Low

The dollar hovered near a five-month low against major peers on Monday, bruised by President Donald Trump’s erratic trade policies and soft economic data, as other currencies, including the euro, benefit from domestic drivers.

Euro and Yen Gain Strength

The euro was last at US$1.0905, up 0.2 per cent on the day, and heading back towards the US$1.0947 it hit last week, its highest since October 11. The Japanese yen was also marginally stronger on the day at 148.48 per dollar, again after hitting its strongest in five months last week at 146.5 to the dollar.

Dollar Index Sinks to Five-Month Trough

That left the dollar index, which measures the US currency against its six major counterparts, at 103.5, just off its five-month trough of 103.21 reached last Tuesday.

Currency Markets Undergo Shift

Currency markets have undergone a shift in recent months, as traders re-evaluate their initial expectations that Trump’s economic policies would both support the dollar and cause other currencies to weaken. In fact, the reverse has happened, and analysts at Societe Generale said on Monday that they had changed their currency forecasts "to reflect Germany’s planned fiscal changes, the US economy’s self-inflicted (relative) fragility, and Japan’s escape from deflation."

Forecasts and Predictions

They see the euro at US$1.13 by year-end and the yen at 139 per dollar. German parties on Friday agreed on a fiscal deal that could boost defense spending and revive growth in Europe’s largest economy.

Bank of Japan and Federal Reserve Meetings

The Bank of Japan is tipped to keep interest rates steady when it meets on Wednesday, but the conditions for another rate hike have been falling into place, with big Japanese firms offering bumper pay hikes in wage talks with unions for a third-straight year. The Federal Reserve meets on Wednesday and is expected to hold rates steady.

Conclusion

In conclusion, the dollar’s weakness has led to a shift in currency markets, with the euro and yen gaining strength. As the Federal Reserve and Bank of Japan meet this week, traders will be watching for any changes in monetary policy, while the euro and yen may continue to benefit from domestic drivers.

FAQs

Q: What is the current state of the dollar?
A: The dollar is near a five-month low against major peers.

Q: What is driving the dollar’s weakness?
A: President Trump’s erratic trade policies and soft economic data.

Q: What is the current state of the euro?
A: The euro is up 0.2 per cent on the day, heading back towards its highest level since October 11.

Q: What is the current state of the yen?
A: The yen is marginally stronger on the day, at 148.48 per dollar.

Q: What are the key events this week?
A: The Federal Reserve and Bank of Japan meet, and the Swiss National Bank is expected to cut rates.