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Key messages

• The US dollar has reversed its post-election gains and is likely to weaken further as expectations for growth-enhancing policies are scaled back.
• Continued dollar weakness could improve the prospects for economic transformation in sub-Saharan African economies.
• If investors’ risk appetite stays resilient, investment could flow to and support emerging and developing economies at a time of reduced willingness to hold dollar assets.

Further US dollar weakness

The US dollar rose by 5% in trade-weighted terms following the US election of President Trump in November 2016.[1] Since its peak at the end of December 2016, the dollar has reversed all of its post-election rise (see Figure 1).

The continued erosion of expected growth-enhancing policy reforms means that many financial forecasters now expect the dollar to decline further. This could negatively impact US growth while also dampen US dollar prospects – a financial environment exacerbated if President Trump, or members of his administration, continue to argue that the dollar is ‘too strong’.