The United States Dollar could not hold on to the slight positive bid it got yesterday morning and is once again trading much weaker against its G10 peers this morning.
Overview
Dollar selling accelerated through the afternoon and overnight sessions, and the Dollar Spot Index, measuring USD’s strength against a basket of major currencies, has fallen to a fresh three-year low. This would mark the Dollar’s worst six-month performance in 10 years, and the worst performance across the first two quarters of any year since the Dollar Spot Index’s inception more than 50 years ago.
The biggest driver of this morning’s major selloff came, as traders have come to expect, from President Donald Trump, who yesterday afternoon said he is considering replacing Federal Reserve Chair Jerome Powell as soon as August or September, well before his term is up towards the middle of next year. Not only does this continue to drive the theory that the Administration is politicizing the central bank’s policy decisions, which would explicitly violate the Fed’s mandate to be a neutral third party, it’s likely that Trump’s named successor would be substantially more dovish given his espoused preference that the Fed should lower interest rates by up to three percentage points. This would dramatically change the monetary policy outlook for the United States, and in all likelihood could exacerbate the Dollar’s large selloff through the back half of this year. Especially given this morning’s final release of Q1 GDP that showed the economy contracted even more than previously shown in the first three months of this year, but the GDP price index showed prices grew even more than previously thought, traders are at a loss as to what could give the Buck any sort of comeback down the road.
The major theme of the year-to-date in FX markets has been questions surrounding ‘de-dollarization,’ and a 10% move lower for the Buck clearly reflects market anxieties about the world’s reserve currency. Much of this debate, so far, has been focused on international exposure and participation in US securities, but some strategists note that there are now warning signs in foreign direct investment as well given the US’ mounting fiscal concerns. Unless the PCE Deflator Index tomorrow morning can hit markets with a massive surprise, the Dollar’s fortunes are likely to stay quite gloomy to wrap up the quarter.
What to Watch This Week…
- Banxico Interest Rate Decision, Thursday
- US PCE Deflator Index, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The single currency, after sliding ever so slightly in trading yesterday morning, ran up the score against the Dollar yesterday afternoon and is now trading a further 0.4% stronger against the Buck from yesterday’s close. EURUSD has broken several resistance levels and is at its highest price since September of 2021. The vast majority of this move is driven by short Dollar flows rather than long Euro, but perhaps markets have begun to give more consideration to Christine Lagarde’s words from earlier this year that the Euro’s moment is now. Several speakers from the European Central Bank will hit the wire today as well.
CHF ⇓
Swiss Franc, reaching historic levels this morning, is now trading at its strongest point versus USD since it decoupled its price from the Euro in 2015 and marked a gain of more than half a percent overnight. The Buck has depreciated a whopping 14.5% versus CHF since the start of this year, and nearly 3% this month alone. Though the Swiss National Bank has expressed concern over the strength of the currency and has slashed its key interest rate to 0%, with the possibility of enacting negative interest rates, the safe-haven status of CHF has proven to be too much to overcome and CHF is one of the top G10 performers this year as geopolitical, fiscal, and monetary questions plague the globe.
