Progress to overhaul the U.S. tax system and President Donald Trump's choice to lead the Federal Reserve could be two major events that lead to weakness for the dollar, according to one currency expert.
"I think the USD will likely be impacted by a few key decisions in the near term. The next Fed chairperson and how much the person President Donald Trump nominates believes in the 'low rates' path is important," Itay Tuchman, global head of forex trading at Citi, told CNBC via email.
One of the most mentioned names to replace Janet Yellen as chair of the Fed is Kevin Warsh, a former Fed member. He is perceived to be more hawkish policymaker — meaning that he would probably support a strong increase in interest rates for the country. However, some traders remain unconvinced.
"Our base case is that the new Fed chair appointee will not be an aggressive hawk," Stephen Gallo, European head of forex strategy at Bank of Montreal, told CNBC via email.
"Once we remove the risk of a hawkish Fed chair appointee and once we see clear signs that the European Central Bank (ECB) is embarking on the quantitative easing (QE) taper, the stage will be set for more fundamentally-driven USD weakness over the medium-term," Gallo added. Gallo believes that euro zone's central bank could be about to tighten policy, thus strengthening the euro against the greenback.