Why has the US Dollar dropped to a 3 year low?

Since the start of the year the US Dollar is down 7% against Sterling and 12% against the Euro. Donald Trump’s administration is arguably the main reason for why the US Dollar has lost value.

At the beginning of the year the President was promising tax cuts and to ease financial regulation, which economists were predicting would strengthen the US Dollar. As his promises have not materialised investors are losing confidence and a sell off of US Dollars has occurred.

In the table below you’ll see high to low GBPUSD exchange rate movement when exchanging £200,000 to US Dollars this week:

Currency Pair% ChangeDifference on £200,000
GBPUSD2.28%$5,980

It’s not just Donald Trump’s administration that has caused the Dollar to devalue. The Federal Reserve have changed their tune in recent months and the chances of 4 rate hikes this year have diminished. However on a positive note inflation numbers yesterday showed an improvement to 1.9% which could put pressure back on the FED to hike at least one more time this year.

US – Europe Trade War could create Euro weakness

EURUSD relationship

The most traded currency globally is EURUSD and as I have stated above the Dollar has lost 12% value against the Euro since the start of the year.

The European Central Bank has reported consistent growth and the European economy is gaining momentum. For many years the European Central Bank have been using a Quantitative Easing program in a bid to stimulate growth and it appears that as early as next month the President could taper that program.

As regular readers will be aware the market moves on speculation and this is another reason why we have seen constant flows out of the Dollar and into the Euro.

When to buy US Dollars

With cable (GBPUSD) exchange rates now sitting at a 12 month high, US Dollar buyers are becoming more increasingly tempted to purchase their currency sooner rather than later. With the German election fast approaching I expect to see a sell off Euros back into the Dollar which in turn could push GBPEUR back towards 1.30.

Thereafter I expect Angela Merkel’s Christian Democratic Union party to form a government which could reverse the speculative trades and then if Mr Draghi tapers the QE program a shift towards 1.35 could occur and that’s when I would buy. For US Dollar sellers the months ahead look uncertain therefore converting sooner rather than later could be your best option.

For further information on how data releases could affect US Dollar exchange rates call our trading floor on 01494 725 353 or you can email me directly at drl@currencies.co.uk.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.