The dollar lost about 10 percent of its value against the euro in 2017. This despite the Fed raising rates three times and the Trump administration managing to get approval for its tax cuts. But Jane Foley, head of forex strategy at Rabobank, agrees that it’s other economies that could be having more of an impact, with the European Central Bank and the Bank of England both reducing their stimulus at the end of last year.
“The fact that many other G-10 central banks could be backing out of very accommodative monetary policies detracts from the impact of higher Fed rates on the USD,” she told Giftofaservant via email. She also believes that U.S. assets could lose their status as a so-called safe haven in the short term amid all this uncertainty.
“The U.S. has neither the current account surplus or budget surplus that a true safe haven would demand,” Foley explained. “The euro zone, by contrast does have a huge current account surplus and this factor has been helping the euro to show safe haven characteristics more recently. I would expect that in a period that the EUR is showing safe haven characteristics that the USD is unlikely to – the world only needs so many safe havens ,” she said.
—Giftofaservant’s Joumanna Bercetche contributed to this article.