Pound edges closer to multi-year high against dollar amid erratic US tax policy
The pound has edged closer to a multi-year high against the dollar as investors doubled down on predictions that the greenback would continue to weaken into the second half of the year.
Sterling was up around 0.6 per cent against the dollar by Monday evening to $1.3523, a rise of more than 8 per cent since the start of the year.
Further bond market weakness, an escalation in global trade tensions and softer US economic data are cited by analysts as top headwinds putting a strain on the dollar’s strength.
Morgan Stanley has projected that the dollar will sink to levels not seen since the coronavirus pandemic by the middle of next year, while analysts at Goldman Sachs pointed to tactics by the White House to tax foreign companies more as further reason to be bearish on the US currency.
This includes new legislation passed last week known as the “Enforcement of Remedies Against Unfair Foreign Taxes,” which requires higher tax rates on companies from countries whose tax policies the US deems “discriminatory,” a measure analysts fear will deter foreign investors further from the US.
The dollar index, which measures the greenback against a basket of currencies, has fallen around 0.6 per cent over the past 24 hours.
‘Greenback is the weakest currency’
Kathleen Brooks, research director at XTB, said dollar weakness is “in focus as we start a new month. The greenback is the weakest currency in the G10 FX space this year.
“It was lower again for May as a whole, however, the dollar made a comeback last week and was the top performing currency in the G10 FX space. This does not indicate the start of a new trend; however, it is something to watch closely.
“We do not think that the dollar is ripe for a recovery here, as the macro and geopolitical environment is not supportive for dollar strength.
“Thus, the dollar could be consolidating before taking another lurch lower, also if trade tensions surge once more this week, and if President Trump slaps more tariffs on other sectors or on China, then the dollar could be in the firing line.”