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Trumping the Dollar

It is still too early to know for sure why the value of the dollar has declined in recent months. But if the Trump administration does indeed pursue a deliberate policy of isolationism, foreign-exchange markets' increasing risk premia on the dollar will have been justified.

LONDON – One of the more fascinating developments in the seven months since US President Donald Trump was elected has been the trajectory of the US dollar, relative to other major currencies. After soaring in the wake of Trump’s victory, the dollar’s value began to slide in April.

There are various explanations for this. One is that Trump’s much-anticipated economic-growth agenda has not materialized, and stands no chance of making it through Congress. Another is that the rest of the world, not least the eurozone, has performed better than expected since Trump’s election.

I spent decades immersed in the intricacies of the foreign-exchange market, so I know that it is foolhardy to assume that one can ever know everything that is going on. Still, beyond the cyclical explanations for today’s trends, a third explanation has become increasingly clear: markets have built in a risk premium for the dollar, to account for the uncertainties that Trump’s presidency has introduced.

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