Dollar at 3-year low, stocks extend record run as Fed pressures mount
LONDON - The dollar sank to a three-year low while world stocks notched their second record high in three days on Thursday as a report that Donald Trump was planning to choose the next Federal Reserve chief early fuelled fresh bets on U.S. rate cuts.
Dollar selling continued after the Wall Street Journal said the U.S. president - who has been urging the Fed to cut rates faster - was toying with the idea of selecting Chair Jerome Powell's replacement in the next few months ahead of his formal departure in May next year.
It left the greenback down more than 10% for the year. If it stays that way in the coming days it will be its biggest first half of a year fall since the early 1970s - effectively the era of free-floating currencies.
European shares edged higher again, buoyed by signs that the Israel-Iran ceasefire appeared to be holding and that European Union leaders were preparing to set their stance for U.S. trade tariff talks ahead of a Trump-imposed deadline of July 9.
The region's flagship STOXX 600 index was up 0.2% on the day while MSCI's record-high world stocks benchmark was up 0.4%, leaving it almost 8% ahead for the year. The euro jumped 0.6% to $1.173, its strongest since 2021.
"The striking thing on the dollar trend of the last six weeks is that in almost any market regime the dollar is struggling to appreciate," State Street's Michael Metcalfe said.
"It seems to be in something of structural decline," he added, highlighting State Street data that investors were now the most negative they have been on the dollar - or "underweight" in banking speak - since the COVID pandemic.
Euro traders also took heart from the outcome of Wednesday's NATO summit that saw the bloc's members of the alliance agree to spend 5% of output on defence - broken down into 3.5% on troops and weapons and 1.5% on looser, defence-related measures.
Overnight in Asia, Tokyo's Nikkei jumped 1.65% to its highest level since January, while MSCI's broadest index of Asia-Pacific shares outside Japan finished slightly higher too.
Back in currency markets, the Swiss franc firmed to a decade-high while the Japanese yen also strengthened again to below 144 per dollar.
There are growing expectations that the Fed will soon be cutting U.S. rates again following recent patchy data, but Trump's criticism of it for not moving quick enough has been escalating too.
He has repeatedly targeted Fed chief Powell, and his idea of naming a successor well before Powell leaves office would effectively create a shadow over the head of the U.S. central bank that could undermine him.
"I think it's a given that Trump's pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump's agenda of lowering interest rates," said Tony Sycamore, market analyst at IG.
"The issue with this is (that) it will resurface questions from earlier in the year around the Fed's independence, which, as we saw, undermines confidence in the Fed and the USD."
The dollar index, which measures the U.S. currency against six rivals, now sits at its lowest level since March 2022 following its slide this year.
Markets are also on watch as the clock ticks down to Trump's July 9 deadline for trade deals to be struck, otherwise sharply higher tariffs on imports to the U.S. will kick in.
Traders are now pricing in a nearly 25% chance of the Fed cutting rates in its end of July meeting compared to 12.5% last week, the CME FedWatch tool showed.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.5 basis points at 3.764%, its lowest level in seven weeks.
In commodities, oil prices rose on Thursday after their sharp slump following the Trump-brokered ceasefire early this week between longtime Middle East foes Israel and Iran.
Brent crude futures rose 0.37% to $67.93 a barrel, while U.S. West Texas Intermediate crude (WTI) gained 0.45% to $65.21..
(Additional reporting by Ankur Banerjee in Singapore; editing by Mark Heinrich)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Khaleej Times
33 minutes ago
- Khaleej Times
US Treasuries face stablecoin-driven demand surge as supply looms
The potential for stablecoins to fuel demand for short-term U.S. Treasury securities was a hot topic at a money market fund conference in Boston this week, with investors expecting these digital tokens to absorb a huge supply of government debt later this year. Stablecoins are pegged to highly liquid assets such as the U.S. dollar and the tokens can drive demand for U.S. Treasuries by requiring issuers to hold large, liquid, and safe reserves to support a 1:1 peg to the greenback. "Stablecoins are drawing for the Treasury market," said Yie-Hsin Hung, CEO of State Street Global Advisors, in keynote remarks at the Money Fund Symposium on Monday. She said about 80% of the stablecoin market is invested in either Treasury bills, known as T-bills, or repos, which are repurchase agreements. That represents about $200 billion, roughly less than 2% of the overall Treasury market. "But stablecoins are growing fast, and most likely, will outpace the growth of Treasury supply," Hung said. As more financial institutions and corporations adopt stablecoin for payments, remittances, or decentralized finance applications, issuers need to hold more reserves to back the growing supply. For instance, if the market capitalisation of USDC, a stablecoin issued by Circle, increases by $10 billion, the issuer might purchase $10 billion in Treasuries to maintain the peg. Circle, a payments technology company, and Tether, a blockchain-enabled platform, are the two largest stablecoin issuers. Given expectations of looming Treasury supply of as much as $1 trillion by the end of the year, the market is looking for an incremental buyer that would be a source of new demand for U.S. government debt. Stablecoin issuers fit the bill, market participants said. "If they do indeed squeeze this supply balloon on Treasuries and rely on the front end of the curve for debt issuance, we think that one of the that all this demand that's coming from (U.S. Treasury Secretary Scott) Bessent cover in order to make that shift to the shorter end," said Mark Cabana, head of U.S. rates strategy at BofA Securities, during one of sessions at the symposium. Cabana noted that stablecoin issuers tend to buy T-bills and shorter-dated Treasury coupons. In an emailed statement on Thursday after the story's initial publication on Wednesday, Tether said it already holds over $120 billion in U.S. Treasuries and continues to act as a significant buyer of short-term government debt. It added that it is already the fifth largest purchaser of U.S. Treasuries. "While we don't speculate on future Treasury issuance or allocations, we remain committed to maintaining highly liquid, dollar-based reserves," Tether said. Circle echoed similar sentiments. The firm noted that the majority of USDC reserves are held in the Circle Reserve Fund, which contains cash, short-dated Treasuries, and overnight repos designed to make USDC redeemable 1:1 for U.S. dollars," a Circle spokesperson said. "This full-reserve composition makes Circle a natural buyer of short-dated U.S. Treasuries and lender in the U.S. Treasury repo market, however, market demand for USDC determines the overall size of our reserves." Adam Ackermann, head of portfolio management at Paxos, a financial services and technology company, said he has had multiple conversations with the largest banks in the world wanting a stablecoin. "They're calling us and saying: I need a stablecoin in eight weeks. How can we get one?" "What's somewhat concerning is we're just at this fever pitch right now," Ackermann said. "It's great for the industry, but we need to start to put some guardrails on things." Stablecoins' popularity further ramped up after the U.S. Senate passed last week a landmark bill to create a regulatory framework for the token called the GENIUS Act. The Republican-controlled House of Representatives still needs to pass its version of the bill before it heads to President Donald Trump's desk for approval, but the bill's passage bolstered hopes of wider adoption of a once-niche part of the crypto sector. The stablecoin market is worth about $256 billion, according to crypto data provider CoinMarketCap, and is estimated by Standard Chartered to reach $2 trillion by 2028 if the legislation is signed by Trump. "I expect that there will be a proliferation of stablecoins," Cabana said. "It will be an incremental demand source (for Treasuries), I would guess, over the next three to five, certainly 10 years."
Zawya
an hour ago
- Zawya
Fed plan to ease leverage rule offers windfall for big US banks, Morgan Stanley says
A Federal Reserve plan to relax leverage rules could free up $185 billion in capital and unlock nearly $6 trillion in balance sheet capacity for large U.S. global banks covered by Morgan Stanley, the brokerage estimated on Thursday. The U.S. Fed unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in U.S. Treasury markets. The plan, approved by a 5-2 Fed vote, marks the first in a possible series of deregulatory moves led by the central bank's new vice chair for supervision, Michelle Bowman. The proposal would reform the so-called "enhanced supplementary leverage ratio" so that the amount of capital banks must set aside is directly tied to how large a role each firm plays in the global financial system. "SLR reform is the first of many capital proposals we expect over Michelle Bowman's tenure," Morgan Stanley analysts led by Betsy Graseck wrote in a note, adding that in a positive for banks the Fed chose the rule change with the biggest increase in excess balance sheet capacity. Fed officials described the changes as a necessary fix to a rule introduced after the 2008 crisis, saying the leverage requirement had grown over time to occasionally limit bank activity, especially as government debt surged in recent years. "The Fed's proposal to calibrate eSLR should give the banking system meaningful capacity to expand its balance sheet in low-risk assets," analysts at brokerage Barclays said. "It makes sense for banks to utilize the theoretical leverage capacity as long as the return from investing in low-risk assets/activity is sufficient," they said. (Reporting by Manya Saini in Bengaluru; Editing by Sriraj Kalluvila)
Zawya
an hour ago
- Zawya
Crypto exchange Kraken debuts peer-to-peer payments app Krak
Crypto exchange Kraken on Thursday launched a peer-to-peer payments app that enables users to send and receive funds - in both cryptocurrency and fiat currency - across more than a hundred countries. The move is a bid to expand Kraken's offerings beyond its digital asset trading business, and puts the firm in competition with PayPal, Venmo and Block's CashApp. WHY IT'S IMPORTANT Crypto exchanges such as Kraken are increasingly signaling an interest in expanding outside of the digital asset trading that initially became popular with retail investors. Kraken said last month that it is launching tokens of U.S. equities, called xStocks, in select markets outside the United States. CONTEXT Krak users will have a dedicated spend account and will be able to instantly send and request payments across 300 different assets, including crypto and local currencies, the company said in a press release. Crypto transfers will be made using blockchain technology, while Kraken will make cash transfers internally without using external banking infrastructure. KEY QUOTE "We're able to move money across borders right off the bat, because that's what we do from a trading perspective in our venues, and we've actually already spent over 10 years building out that system for money transmitter licenses... in all the jurisdictions," said Arjun Sethi, co-CEO of Kraken, in an interview with Reuters. "You have to do that as an exchange anyways, and so what we realized is that our customers just wanted to do more with their money." WHAT'S NEXT Kraken plans to launch a series of products through Krak in the future, including physical and virtual cards as well as pay-in-advance services like loans, the company said. (Reporting by Hannah Lang in New York; Editing by Louise Heavens)
