The U.S. dollar got a boost after the presidential election as markets were encouraged by prospects of lower taxes, fiscal stimulus and deregulation that would accelerate growth of the American economy.
But this month, the dollar has fallen sharply, hitting a seven-month low. A weaker dollar gave some relief to depressing commodity markets.
Why then is the dollar losing its luster now?
First, the dollar had steadily risen for three consecutive months. It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.
Selling intensified after the recent political turmoil around President Donald Trump as investors worry over political stability in the U.S. Investors also worry that under these political turbulences, the Trump administration will struggle to implement the pro-growth initiatives that markets had taken for granted. Finally, the euro appreciated against the dollar as political risks in Europe eased following the French elections.