The following is a contributed article from a content partner of Benzinga
The United States Dollar has been devaluing against other major currencies in 2020 and it is highly likely it is a direct result, in some sense, of Trump’s reaction to the global pandemic we are still facing as a species. The result of this is good news for European residents as the Euro has been a big winner this year but for United States residents the value of their hard earned money is now worth less on a global stage.Â
In this article we look into some of the reasons that Trump may have been behind this yearâ€™s devaluation of the US Dollar and further discuss what is to come in the upcoming weeks and months.
Trump Risk Premium
The volatility in the decision making process of Donald Trump has resulted in a risk premium being embedded in the US Dollar for the last 4 years, but in 2020 we really saw this take hold. Trump really outdid himself in terms of adding risk to economic factors as his lies hit a new level of delusion this year. The result of this level of disregard for facts would have investors running a little scared about what could happen next. As we all know, any level of fear increases the risk premium associated with an asset and the US Dollar is no different in that regard.
This disregard for facts was evident on a number of occasions as Trump contradicted scientific professionals when commenting on COVID-19. Since the early days of the pandemic President Trump has downplayed the virus at every turn in an attempt to keep the economy booming. The adverse result of this strategy was a weekend dollar due to global uncertainty of what to expect out of the leader of The United States. The economy has boomed but at the same time the dollar has weakened so although the Dow reached new highs on a global scale these new highs came at a cost of the dollar value of those new highs not being worth as much when exchanged to other currencies.Â Â
On top of the COVID-19 commentary further lies came during and after the election of President Elect Joe Biden to the top seat of US government. At this stage of the game investors may be unsure if Trump is simply playing a game or really does believe the lies he tells. If he does believe them there still exists a risk premium for what he might do in his final days in office. Until Joe Biden is officially sworn in this risk premium will remain firmly attached to the US Dollar.
Mismanagement & Denial of COVID-19 Risk
President Trump has been downplaying the impact and overall destructive force of COVID-19 since the news of the virus first broke. The result of this in the United States has been an incredibly under-managed reaction to the virus. The aftermath of this reaction is that the United States has one of the highest death tolls and infection R rates (reproduction rate) of any country in the world.
The mismanagement of the COVID-19 pandemic means that in more than half of the United States the virus is still growing in terms of the number of people infected. This adds further risk to the overall US economy and the Dollar is adversely affected as other countries are seen to be safer investing havens than the United States.
The outcome of the mismanagement on the US Dollar is that the value has plummeted since March 2020 and continues to be on a declining trend.Â
Although the dollar has dropped this has created some pretty amazing and predictable trading opportunities for traders. While investors are worrying there are plenty of forex signals being produced on a daily basis that a trader can be taken advantage of. There is clearly some change coming, which we will talk about in one moment, and this change is also a big opportunity to take advantage of different technical and fundamental signals. The key takeaway is that there are opportunities to make money when there is a strong risk premium associated with an asset and even further opportunities when the market is about to adjust and potentially drop the risk premium.Â
Positive Signs for Value Increase
The election of President Elect Joe Biden is the first systemic change element that should result in a retraction of the risk premium on the US Dollar and a possible correction. Joe Biden taking office will mean the world will have a much more stable leader to look to when analysing the United States Dollar and therefore this stability will inevitably translate over to the Trump risk premium being eroded away as time goes on.
Biden is only one positive element though, the other element is the news of all the recent COVID-19 vaccines that have been developed. These vaccines hitting the market in the coming days and weeks will mean that the associated risk that investors see in the United States as a result of the countryâ€™s COVID-19 handling will drop.
Risk Adjusting Period
Now is as good a time as any to be considering looking back at the US Dollar, particularly as Biden is about to take office and there are vaccines hitting the global market. Therefore investors should be considering all the macroeconomic change that is occurring in the coming months when making decisions that the US Dollar affects.
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