Trump botches up value of the dollar

The currency world is upside down. The political developments of recent weeks are the complete opposite of the anticipations of market parties around New Year: worries about populism within the EU are ebbing away, while Donald Trump’s antics cause unrest for the dollar.

In recent weeks, the euro rose by more than three per cent compared to the dollar. It’s the fourth time within six months that the currency gained considerable ground. These movements are the results of political relief after a European ballot or unrest over Trump’s latest actions. The pressure on the dollar increased due to reports that he supposedly shared information with Russia.

Moreover, soon after the sudden dismissal of FBI director James Comey, it was discovered that former national security advisor Michael Flynn and other members of Trump’s campaign team were in regular contact with high-ranking Russian officials. The start of an investigation into those contacts opened the doors for a new series of disturbing news reports about ‘The Donald.’

Besides politically, relations between the US and Europe have also rapidly changed in economic terms. After years of shrinking economies, growth has gradually become increasingly evident on our continent. Mid-May, the Dutch CBS (central bureau of statistics) announced that the Dutch economy was 3.4 per cent higher than a year earlier during the first quarter: the largest increase since 2008.

Across the pond, the economic growth of 0.7 per cent in the US during this period was the smallest increase in three years. The economic developments have had a major influence on the currency markets indirectly. A strong economy gives the central bank space to increase interest rates, making it more attractive for parties to hold capital in the currency. 

In view of the election calendar in Europe, there is little chance that political risk will flare up again. On the other hand, the storm surrounding Trump doesn’t appear to be diminishing in strength. The most probable scenario is that the euro will gain more ground compared to the dollar due to political and economical developments. The surprising events of recent months, however, emphasise that companies would do well to choose covering the currency risk, rather than blindly assume the most likely scenario will happen.