January 2017 was a pretty poor month for the US dollar. In fact, it was its worst January for 30 years. There were fears about what the new President Donald Trump would do regarding protectionism and talking down the currency. In comparison, one of its major trading partners and the most traded currency pair in the world, the euro rose, above $1.08 for the first time this year. While it was an interesting month for traders of the currency pair, a number of factors look set to continue its uncertainty and volatility throughout February.
Upcoming Brexit Negotiations
One of the most recent and biggest events to affect the euro’s value has been the uncertainty an imminent Brexit provides. The UK voted in its historic referendum to leave the EU but Brexit will only become official once Article 50 is triggered, which the UK government aims to do by the end of March. Until then there is an overhanging uncertainty which prevents the euro from strengthening too much and taking advantage of a weakened dollar.
US Travel Ban
President Trump introduced plenty of uncertainty to many markets and saw the dollar slide with his curbs on travel to the USA. The announcement saw it fall 1.5% against the yen and the EUR/USD pair near 1.0770 in the aftermath. In February there are likely to be further developments to the plan, either with the travel ban being enforced or Trump going back on his plan. Either of these options will impact upon the EUR/USD, though which one happens it remains to be seen.
Inflation and Unemployment
More common factors such as inflation, interest rates and unemployment levels will also see the EUR/USD pair fluctuate. Depending on what Trump does next regarding his monetary policy could see inflation levels rise and currency values follow suit. Inflation is believed to push higher throughout 2017 and that could continue in February, while efforts to tackle unemployment will take longer.
Other Currency Pairs
The US dollar has also weakened against other currencies, such as the Japanese yen, while the euro remains volatile too. This offers excellent opportunities for City Index traders using MT4 platforms to invest in the currency pair in the future while it is at a low level, hoping for a strong recovery later on.
At the time of writing, the outlook is bearish for the EUR/USD currency pair for February, though a lot could change to see it beat the odds in the month.
A freelance business and finance writer based in the UK. Discusses political movements which affect the financial markets.