Dollar weakness is the most surprising feature of financial markets so far in 2018. It is surprising because it is happening at a time when the dollar was generally expected to be stronger in view of widespread assumptions that interest rates in the United States are headed higher. But in this instance, projections of higher interest rates are now being "Trumped" by broader concerns that the US administration's attitude towards free trade, and ultimately towards the dollar itself, are changing.
The dollar index is down more than 13.5 per cent since the start of 2017, and 3.5 per cent this month alone, reaching its lowest level in three years after Treasury Secretary Steven Mnuchin signalled that a weaker US dollar would be good for the US economy, and as concerns about US protectionism increased.
Under normal circumstances, the rise in US Treasury yields currently under way should be supportive of the dollar, especially at a time when the outlook for monetary policy elsewhere in the world is much less certain. US two-year yields breached 2 per cent in early January, the highest levels they have reached since 2008, and 10-year yields appear to be eyeing a re-test of 3 per cent, a level not seen since late 2013. And even though markets are beginning to gain more confidence as other central banks, in the eurozone, the United Kingdom and Japan are positioning themselves to tighten monetary policy as well, this does not reverse the widening interest rate differentials that are still very much in the dollar's favour.
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Read more:
[ Foreign exchange rates react to Mnuchin, Hammond comments on dollar, pound ]
[ US dollar weakness to continue due to political gridlock ]
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Last year, dollar weakness was often rationalised by doubts about whether the Fed would actually deliver the three rate hikes projected by its own forecasts, as well as by uncertainty about whether tax reforms would ever get passed. But with both the Fed and the White House finally delivering on these policies last year, these explanations do not seem to hold water fortoday. More likely the real focus was on the negative implications of those tax cuts for the US's twin deficits, in particular the fiscal one.
Another element that has not changed much from the last year to this one is the perception of political uncertainty in Washington DC, an ever present concern almost since Donald Trump's inauguration in January 2017. This began to gain ground in May after former FBI Director James Comey was fired by Mr Trump and the Mueller enquiry into Russian collusion was launched, with the dollar's decline being a more or less a consistent feature since then. Even so, its depreciation in 2017 was relatively gradual and contained, which was perhaps surprising in view of the protectionist rhetoric of Mr Trump's election campaign.
However, 2018 has begun with intensified political noise around the Trump White House which has already seen real consequences with the brief closure of the US government. The perception of policy drift is also growing, while the Mueller enquiry is increasingly being seen as an existential threat to the Trump presidency. Into this uncertainty, the White House has reopened the sensitive issue of trade policy and protectionism, as the North American Free Trade Agreement negotiations resumed.
Separately, Mr Trump announced new import tariffs on solar panels and washing machines that will largely affect Asian exporters.
President Trump reiterated his "America first" agenda during his speech at the World Economic Forum in Davos, while Treasury Secretary Mnuchin was also explicit about the benefits of a weak dollar.
Although Mr Trump subsequently rowed back on Mr Mnuchin’s remarks following ECB criticism, the perception remains that a policy shift is underway.
In hindsight, it was probably only likely to be a matter of time before the dollar began to be affected by Mr Trump’s mixed messages on trade and by White House dysfunction. Following the Plaza accord dollar devaluation in the mid-1980s, the markets became accustomed in the 1990’s to US Treasury Secretaries’ articulation of strong dollar policies. This approach is clearly over, and may even have reversed, and in a chaotic political environment in Washington, it may take a lot more than the Fed’s projected rate hikes to rein the dollar back in.
Tim Fox is chief economist and head of research at Emirates NBD
Four scenarios for Ukraine war
1. Protracted but less intense war (60% likelihood)
2. Negotiated end to the conflict (30%)
3. Russia seizes more territory (20%)
4. Ukraine pushes Russia back (10%)
Forecast by Economist Intelligence Unit
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Max power: 700hp at 7,500rpm
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Transmission: Eight-speed dual-clutch auto
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Top speed: 330kph
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Company Profile
Name: HyveGeo
Started: 2023
Founders: Abdulaziz bin Redha, Dr Samsurin Welch, Eva Morales and Dr Harjit Singh
Based: Cambridge and Dubai
Number of employees: 8
Industry: Sustainability & Environment
Funding: $200,000 plus undisclosed grant
Investors: Venture capital and government
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
COMPANY PROFILE
Company name: Almouneer
Started: 2017
Founders: Dr Noha Khater and Rania Kadry
Based: Egypt
Number of staff: 120
Investment: Bootstrapped, with support from Insead and Egyptian government, seed round of
$3.6 million led by Global Ventures
Zayed Sustainability Prize
Confirmed bouts (more to be added)
Cory Sandhagen v Umar Nurmagomedov
Nick Diaz v Vicente Luque
Michael Chiesa v Tony Ferguson
Deiveson Figueiredo v Marlon Vera
Mackenzie Dern v Loopy Godinez
Tickets for the August 3 Fight Night, held in partnership with the Department of Culture and Tourism Abu Dhabi, went on sale earlier this month, through www.etihadarena.ae and www.ticketmaster.ae.
TWISTERS
Director:+Lee+Isaac+Chung
Starring:+Glen+Powell,+Daisy+Edgar-Jones,+Anthony+Ramos
Rating:+2.5/5
Getting there
The flights
Emirates and Etihad fly to Johannesburg or Cape Town daily. Flights cost from about Dh3,325, with a flying time of 8hours and 15 minutes. From there, fly South African Airlines or Air Namibia to Namibia’s Windhoek Hosea Kutako International Airport, for about Dh850. Flying time is 2 hours.
The stay
Wilderness Little Kulala offers stays from £460 (Dh2,135) per person, per night. It is one of seven Wilderness Safari lodges in Namibia; www.wilderness-safaris.com.
Skeleton Coast Safaris’ four-day adventure involves joining a very small group in a private plane, flying to some of the remotest areas in the world, with each night spent at a different camp. It costs from US$8,335.30 (Dh30,611); www.skeletoncoastsafaris.com
5 of the most-popular Airbnb locations in Dubai
Bobby Grudziecki, chief operating officer of Frank Porter, identifies the five most popular areas in Dubai for those looking to make the most out of their properties and the rates owners can secure:
• Dubai Marina
The Marina and Jumeirah Beach Residence are popular locations, says Mr Grudziecki, due to their closeness to the beach, restaurants and hotels.
Frank Porter’s average Airbnb rent:
One bedroom: Dh482 to Dh739
Two bedroom: Dh627 to Dh960
Three bedroom: Dh721 to Dh1,104
• Downtown
Within walking distance of the Dubai Mall, Burj Khalifa and the famous fountains, this location combines business and leisure. “Sure it’s for tourists,” says Mr Grudziecki. “Though Downtown [still caters to business people] because it’s close to Dubai International Financial Centre."
Frank Porter’s average Airbnb rent:
One bedroom: Dh497 to Dh772
Two bedroom: Dh646 to Dh1,003
Three bedroom: Dh743 to Dh1,154
• City Walk
The rising star of the Dubai property market, this area is lined with pristine sidewalks, boutiques and cafes and close to the new entertainment venue Coca Cola Arena. “Downtown and Marina are pretty much the same prices,” Mr Grudziecki says, “but City Walk is higher.”
Frank Porter’s average Airbnb rent:
One bedroom: Dh524 to Dh809
Two bedroom: Dh682 to Dh1,052
Three bedroom: Dh784 to Dh1,210
• Jumeirah Lake Towers
Dubai Marina’s little brother JLT resides on the other side of Sheikh Zayed road but is still close enough to beachside outlets and attractions. The big selling point for Airbnb renters, however, is that “it’s cheaper than Dubai Marina”, Mr Grudziecki says.
Frank Porter’s average Airbnb rent:
One bedroom: Dh422 to Dh629
Two bedroom: Dh549 to Dh818
Three bedroom: Dh631 to Dh941
• Palm Jumeirah
Palm Jumeirah's proximity to luxury resorts is attractive, especially for big families, says Mr Grudziecki, as Airbnb renters can secure competitive rates on one of the world’s most famous tourist destinations.
Frank Porter’s average Airbnb rent:
One bedroom: Dh503 to Dh770
Two bedroom: Dh654 to Dh1,002
Three bedroom: Dh752 to Dh1,152
Sly Cooper and the Thievius Raccoonus
Developer: Sucker Punch Productions
Publisher: Sony Computer Entertainment
Console: PlayStation 2 to 5
Rating: 5/5
The specs: 2018 Peugeot 5008
Price, base / as tested: Dh99,900 / Dh134,900
Engine: 1.6-litre turbocharged four-cylinder
Transmission: Six-speed automatic
Power: 165hp @ 6,000rpm
Torque: 240Nm @ 1,400rpm
Fuel economy, combined: 5.8L / 100km