Macroscope | Thanks to Trump, the US dollar’s 8.1 per cent plunge is the Pain Trade of the Year

As far as “pain trades” go, this year’s dramatic decline in the US dollar ranks as one of the most excruciating.

Since the beginning of January, the dollar index - a gauge of the greenback’s performance against a basket of other currencies - has plunged 8.1 per cent to its lowest level since last September, with the bulk of the decline occurring in the last two months or so.

On Tuesday, the dollar was dragged down further by the failure of the US Congress to replace former president Barrack Obama’s healthcare system with a new scheme favoured by president Donald Trump and most of his Republican lawmakers.

The greenback, which has become a gauge of Trump’s ability to win Congressional approval for his pro-growth policies of tax cuts and infrastructure spending, is wilting as international investors lose faith in the so-called “reflation trade,” a major - if not the most important - component of which was the “Trump trade”.

The unwinding of “long dollar” positions began in the spring. According to the monthly Global Fund Manager Survey published by Bank of America Merrill Lynch (BAML), the dollar ceased to be the most crowded trade in April and has since been supplanted by the technology-heavy Nasdaq equity index and European stocks.

Trump’s political woes - the president’s authority and, more worryingly, America’s standing in the world have been severely undermined by the escalation of the Russia probe dogging the White House, with Trump’s approval rating now standing at just 36 per cent and nearly 50 per cent of voters believing his presidency has weakened America’s place on the world stage, according to a new Washington Post-ABC poll - are not the only factor weighing on the greenback.