The US dollar has been slammed in January — and there could be more weakness to come

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The US dollar has been in a world of hurt so far in 2018, continuing the trend seen in preceding 12 months.

The US dollar index, or DXY, has fallen 3.26% so far in January, extending its losses from early 2017 to over 14%.

As seen in the chart below from Westpac, while the DXY has suffered larger monthly declines in the past, the weakness in January is still unusual compared to historic norms.

Source: Westpac

With just of few days to go, the DXY is on track to record its largest January decline since 1987, and the second-largest fall to start a year going back to 1968.

Robert Rennie, Head of Financial Market Strategy at Westpac, says the start of the year may be a sign of what’s still to come.

“Given this follows a circa 10% fall last year, this now feels like an entrenched trend,” Rennie says.

“2017 and 2018 is so far is looking increasingly like the 2002-2004 period when twin deficit (fiscal and current account) concerns slammed the dollar.

“If history is a guide, this move could have further to go.”

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