If we look at the likes of the US dollar, the euro, sterling, and the yen, it seems hard to construct a particularly bullish case. Political strains are evident in all, and economic growth is hardly anything to write home about. The US dollar appears particularly troubled as it seems that the Federal Reserve is going to re-engage monetary easing this month, not because inflation is becalmed, but because the labour market is deteriorating.

It’s likely to mean that the Fed will be easing at a time when inflation is still moving up, further away from the target, and this is rarely a positive backdrop for currencies. The weakness in the labour market is reflected in deteriorating hopes for the broader economy as well, given that many so-called GDPNow measures suggest that current quarter growth will fall far short of the 3.3% rebound that we saw in Q2. But it is not just growth and Fed policy that the US dollar has to contend with. It is also the contentious manner in which policy is being conducted, as the Trump administration’s tariff policy is referred to the Supreme Court to seek a ruling that the bulk of tariffs are legal.

President Trump’s attempted dismissal of Fed Governor Cook may well be referred to the Supreme Court as well and, last week, we found out that Trump’s pick for Fed Governor, Stephen Miran, the current White House economic advisor will still seemingly keep his job (albeit without pay) should he succeed in gaining nomination for the Fed through to next February. None of these developments seem likely to inspire confidence in the US dollar. But which currency could gain the most from the US dollar’s slide?

The euro’s ability to pose the biggest challenge to the US dollar is possibly being waylaid by political problems in the region, notably France, where PM Bayrou looks set to be ousted in a confidence vote today. If so, he will be the second PM to depart trying to push through tough budget measures. Now we don’t doubt that this is an issue that’s far more keenly felt in the bond market than in the euro. Budget strains in the past, including the 2010-2012 eurozone debt crisis, saw their biggest impact in the bond market.

Indeed, the eurozone was set up in such a way that would prevent any debt crisis from imperilling the euro, but even so, it seems likely that strains in France will at least prevent the euro from leading the fight against the dollar. Sterling too is dogged by political problems, as the Labour Government lost its Deputy PM last week over ill-judged mortgage financing arrangements. This comes at a time when, like France, budget challenges are weighing on growth prospects, and the danger, again like France, is that the tensions usher in governments that are more radical, especially when it comes to the vexing question of immigration. But while France’s National Rally has a long history of trying to get into power, the UK’s Reform Party has less history but no less political momentum as it’s poll support pushes ahead of the two main parties.

All told, political/budgetary strains in the UK may make it hard for the pound to take the fight to a weaker dollar. The same goes for the yen as PM Ishiba announces that he is stepping down following a disastrous Upper House election result earlier this year. The poor outcome was also due, in part, to the strong showing for the far-right Sanseito Party, with its hefty focus on immigration.

Steven Barrow, Head of Standard Bank G10 Strategy, said with many major currencies challenged in some way, it seems that countries devoid of such political travails, like China, are picking up support. He believes that minor G10 currencies like the Australian dollar could also gain alongside emerging markets, as it appears that some diversification away from G10 assets is finding its way into emerging markets. As usual, investors will likely tread warily here, and that’s justified as the risk of a damaging policy mistake from the Fed grows because of domestic political pressure, and if the US missteps, other currencies may pay the price. Nonetheless, for now major currencies, including the US dollar, are losing out to more minor currencies and emerging market currencies.