I try to avoid writing about currencies. This isn’t because I find them uninteresting. Rather it is because most currency discussions invariably involve taking a directional view.  Anyone familiar with exchange rate models, or the track record of professional forecasters, would appreciate that this is a fool’s errand. However, we are at a moment in the history of the international financial system when a discussion about the future of the dollar cannot be dismissed.

The US economy has entered a period of heightened economic policy uncertainty.  Significant policy changes were anticipated under the Trump administration. This includes trade protectionism, finding ways to reduce government expenditure, and delivering on tax reductions in the next budget. All of these policy areas are being tackled. However, the manner in which policy is being conducted exposes businesses to considerable uncertainty. This is happening at a time when some indicators of real economic activity have weakened considerably.

The past year has been one of positive surprises. Inflationary pressures were brought under control in most countries. US economic growth remained strong, exceeding most forecasts.  Equities and credit performed well.