Investor focus has shifted away from the Middle East and back towards tariffs, trade and the prospect of looser monetary policy from the US Federal Reserve. President Trump has continued to fire broadsides at the Federal Reserve Chair, Jerome Powell. Mr Trump has made his displeasure with Mr Powell abundantly clear, accusing him of keeping interest rates too high.
In FX, the EUR/USD surged above 1.1700 this morning to hit its highest level since September 2021. Broad dollar softness continued to play out across FX markets. The Dollar Index dropped below 97.00 to hit lows last seen over three years ago, while the GBP/USD smashed above 1.3700 to trade at highs last seen in October 2021.
Source: TN Trader
Pressure on the US dollar intensified after President Trump publicly stated his intention to announce his replacement for Federal Reserve Chair Jerome Powell by September or October, well before he is set to stand down in May next year. Mr Powell has repeatedly warned that the Trump administration’s tariff plans will stoke inflation while boosting uncertainty.
Hence, his reluctance to commit to near-term rate cuts, with markets pricing the September meeting as the most likely one for a 25 basis point reduction. This uncertainty, along with the US’s burgeoning national debt, President Trump’s ‘Big, Beautiful Bill’, and his continued criticism of Mr Powell, are all factors weighing on the US dollar, causing some analysts to question the future of its status as the world’s reserve currency. But at some stage, sentiment will shift.
That generally happens when everyone is on the same side of the boat. Analysts and traders are very ‘dollar negative’ currently, which could push the greenback lower over the short term. But that could suddenly change. If it does, the dollar could stage a spectacular recovery as short-sellers rush to cover losing positions.
