The Strategist

Three new reasons for the dollar’s collapse

03/14/2018 - 11:17

It turned out that the ascent of the dollar to the main currencies was short-term. Once there was a new portion of negative news for the US currency, the dollar immediately continued with a significant drop.

The dollar fell by 0.6% to 105.45 to the yen, down to a 16-month low. Against the Swiss franc, the American currency lost 0.4%, falling to 0.9368 francs; the euro rose to 1.2420 dollars.

The trouble began as early as Tuesday. News about the normalization of the situation on the Korean peninsula and prospects for the Korean dialogue sharply reduced investor interest in the assets-shelters, which include the American currency.

A new impetus for the depreciation of the dollar was the resignation of Trump’s economic adviser Gary Cohn. The official, who was called "the protégé of Wall Street," decided to leave his post amid the decision of the US president to introduce economic duties on the import of steel and aluminum in the United States. Trump's decision found no support among the American allies and the Republican Party. At the same time, the resignation of Cohn sharply increased the fears of the markets about the beginning of the US trade war with a number of countries, including Washington's allies.

And, finally, Market Watch calls yet another more fundamental reason for the decrease in investors' interest in the dollar. According to analysts at Bank of America Merrill Lynch, hedging dollar assets, especially in euro and yen, is becoming increasingly expensive against the backdrop of the prospect of normalizing the monetary policy of the world's central banks. Another reason for the decline in interest in the dollar is the repatriation of US capital due to Trump's tax reform. Earlier, that American corporations were one of the key buyers of US government bonds, but now such a need will be significantly reduced.