US dollar losing its luster as safe haven investment
NEW YORK: In times of uncertainty or crisis, investors typically take refuge in ‘ safe’ options like the Swiss franc, gold or the US dollar, but under President Donald Trump the greenback has lost its luster, especially to the euro.
After this week’s North Korean missile launch over Japan raised fears it could trigger a major conflict, the single European currency rose above the symbolic threshold of US$ 1.20 for the first time since January 2015.
“The dollar and US Treasuries are typically safe haven assets. But no one really wants to own the dollar right now,” said Brad Bechtel, head of the foreign exchange trading at Jefferies.
US monetary policy also plays a role in the dollar’s relative value, as do comments – or the absence thereof – from central bankers.
“The lack of faith in the US administration and the fact that the Fed has been relatively clearly not anxious to hike rates again any time soon” influence the dollar, Bechtel said.
The US currency had benefited from the promises of economic reforms from candidate Trump at the end of 2016.
But the president is finding it increasingly difficult to get his pro-growth agenda through Congress.
While economic growth is strong – hitting Trump’s three percent goal in the second quarter – inflation has been persistently weak, making the Fed reluctant to raise interest rates a third time this year, a move that would benefit the dollar.
Traders were very disappointed when Federal Reserve chair Janet Yellen carefully avoided any discussion of monetary policy in a speech last week at the closely watched Jackson Hole central bankers forum.
Meanwhile, the euro is attracting more and more investors.
Thanks to the very accommodating monetary policy of the European Central Bank ( ECB), interest rates remain very low, even negative, in the euro area.
That has made the single currency a funding vehicle for speculative trades, where investors borrow at a low interest rate to move into assets with higher returns. — AFP