The dollar has plumbed its lowest level in 33 months, succumbing to pressure from a combination of market concerns, ranging from hurricane damage and North Korea to the composition of the Federal Reserve and its policy direction.
The index measuring the dollar against a basket of its major peers fell 0.5 per cent on Friday to touch 91.011, a level not seen since January 2015.
The latest drop extends a decline that began in early January and now runs to a drop of 12 per cent for 2017.
After focusing on the euro in a week dominated by the European Central Bank meeting and the prospects of tapering its bond purchases, investors reset their sights on the dollar and found they could take their pick of reasons to sustain the bearish momentum of recent months.
The week for the dollar has felt like “the perfect storm”, said Valentin Marinov at Crédit Agricole.
While the cloud over the US government’s $19.8tn debt ceiling had been lifted by President Trump’s deal with Democrat leaders, sentiment towards the dollar “remains depressed”, Mr Marinov said.
The dollar, already weighed down by market willingness to keep buying the euro despite ECB president Mario Draghi’s concerns over currency strength, came under further pressure for Fed-related reasons, turning investors off the notion of another rate rise this year.
New York Fed president William Dudley, while arguing for further rate rises, said subdued inflation data were puzzling and may be caused by structural rather than transitory reasons.
For some investors, the more significant Fed development was the resignation of noted hawk and vice-chairman Stanley Fischer, which Rabobank said would cut the probability of a third hike before the end of the year.
According to Deutsche Bank’s George Saravelos, the slate of Fed nominees at President Trump’s disposal makes it “practically impossible to identify the future policy path”.
Derek Halpenny at MUFG said the probability of a December rate hike had fallen to 20 per cent, influenced by the likely disruption to the US economy caused by hurricane damage.
“You have to wonder, with the degree of disruption to the flow of economic data that these storms will bring, how confident the Fed will be in making policy decisions,” said Mr Halpenny.
More broadly, said Kit Juckes of Société Générale, reasons for optimism in the US economy were in short supply. “The peak in US growth and in expectations about the likely peak in the fed funds rate and the economic impact of President Trump are all behind us.”
Other analysts focused on North Korea, noting that Foundation Day on Saturday could prompt another missile launch.
ING’s Viraj Patel on Friday advised investors to look at “risk-off, dollar-off” as the day’s prevailing theme.
Mr Saravelos pointed to a specific structural reason to stay bearish on the dollar. A new driver of the forex market was the adjustment in flow imbalances caused by unconventional monetary policy, he argued.
“Americans are hugely underweight in their investment allocations to the rest of the world . . . the past few years Americans have liquidated close to the entirety of their foreign fixed income portfolio and are likely in the process of re-allocating back to the rest of the world,” Mr Saravelos said.