It has been a volatile six weeks for the U.S. dollar. After rebounding from four-month lows, the U.S. currency has declined in six of the past seven sessions. The declines accelerated on Tuesday as geopolitical risks and a surging British pound weighed on the world’s most popular currency.
The dollar index, a weighted average of the greenback against a basket of six peers, fell 0.8% to 99.50 on Tuesday. That was the lowest level in three weeks and the sixth drop in seven days. The greenback has declined over 1.5% during that period.
Prior to the decline, the dollar was trading at nearly one-month highs, as markets consolidated in the wake of the Federal Reserve’s March decision to raise interest rates.
The selloff on Tuesday was stoked by the British pound, which rose to yearly highs after U.K. Prime Minister Theresa May called for a snap election on June 8.
Explaining the decision, May said, “The country is coming together but Westminster is not.â€[1]
The snap election could strengthen May’s mandate to negotiate a hard Brexit with the European Union (EU). The U.K. officially launched the Brexit process on March 29.
The pound rose more than 2% against the dollar on Tuesday.
The dollar was also down half a percent versus the yen and euro.
Prior to the latest slide, the dollar was pressured by a gold rush as investors sought reprieve from geopolitical tensions stemming from Syria and North Korea. Gold and silver prices soared to fresh five-month highs last week, which triggered a large reversal for the greenback.
Gold and silver are priced in dollars and therefore trade inversely with the U.S. currency. This has been especially the case for the last two-and-a-half years, a period characterized by a strong dollar and weak precious metals.
The outlook on the greenback hinges on U.S. monetary policy and perceived geopolitical risks. Although the dollar is widely regarded as a global safe-haven asset, it is less attractive than gold as a hedge against inflation and political uncertainty.
