Room for dollar and sterling recoveries to gain real momentum

The dollar has had a difficult time for most of 2017, losing over 11% of its value on a trade-weighted basis between January and the end of August, as the positive market reaction to Donald Trump’s unexpected win in last November’s US Presidential election dissipated, writes Oliver Mangan. 

The currency’s slide was surprising given that the Fed delivered three 25 basis point rate hikes in December, March and June, taking official rates in the US up to 1.125% by mid-year, well above rates for the other major currencies.

The dollar, though, has stabilised in the past couple of months as the Fed reaffirmed its commitment to continue hiking rates in a steady fashion and indicated that a further rate increase was likely before year end. The Trump Administration has also been attempting to make progress on its tax cut plans, which it wants to see implemented next year. US economic data have also remained solid, with the unemployment rate falling below 4.5%.