The greenback under pressure

Last year when Donald Trump got elected, the markets around the world after a brief sell-off tried to adjust itself to the ‘Trump’ theme. The rhetoric from the new president and his camp was directed towards infrastructure development, protection of local industries and putting pressure on Chinese to not devalue its currency.

The markets recovered on these indicative policies, especially the dollar which started a massive bull-run. The dollar index (DXY), which values the dollar against a basket of other currencies, rallied towards its fourteen year high. As the DXY moved up, outflows from emerging markets also picked up and it seemed like king dollar would ascend to new heights.

However, the Trump theme got a reality check sooner than most expected. The market began to realize that he was not getting any work down and was facing strict opposition even from the Republicans in whatever new bill he tried to pass.

The icing on the cake came when he faced a backlash for firing the FBI director James Comey. The financial markets at that point started adjusting towards an anti-Trump theme. Last week, the Dow and the S&P recorded one of their worst days in nine months. Consequently, king dollar started facing external pressure and the DXY so far has given almost all gains it made post-Trump elections.

Even the positive economic data coming out of the US could not prevent the retracement in dollar. The political data has taken over and will continue weigh in heavy on the currency until the whole FBI- James Comey and Trump-Russia connection issue is not resolved.

Pakistan is a very insignificant trade partner of the US, hence the DXY does not account the rupee. However, due to the imminent current account situation of Pakistan, this retreat in the dollar can give a short breather to the central bank. As far as the stock market is considered, the foreign investment outflows that were triggered due to Trump trade could also potentially find their way back in the market.