Latest news with #Lagarde
CNBC
19 hours ago
- Business
- CNBC
Could the euro pose a threat to King Dollar?
U.S. President Donald Trump's tariffs regime has sparked volatility in American assets — and European officials are making no secret of wanting the euro to seize upon wavering confidence in the U.S. dollar. The dollar is the world's most commonly held reserve currency, accounting for almost 60% of global foreign exchange reserves and playing an important role in the trade of assets like oil and gold. It also acts as a peg for currencies including the Hong Kong dollar and the Saudi Riyal. In second place, trailing far behind the greenback, is the euro, which makes up around 20% of international FX reserves. The dollar index — which measures the greenback against a basket of major rivals — has fallen by more than 8% since the beginning of the year. This week, European Central Bank President Christine Lagarde said the shifting geopolitical landscape that was driving those moves gave European policymakers an opportunity to raise the euro's status. "Multilateral cooperation is being replaced by zero-sum thinking and bilateral power plays," she said on Monday in a speech at Hertie School in Berlin. "There is even uncertainty about the cornerstone of the system: the dominant role of the US dollar." This, she said, could "open the door for the euro to play a greater international role."Closing that gap was "far from guaranteed," Lagarde noted in her speech, while nevertheless suggesting that the European currency could "earn" greater global influence with the right policy mix. "First, Europe must ensure it has a solid and credible geopolitical foundation by maintaining a steadfast commitment to open trade and underpinning it with security capabilities," she said. "Second, we must reinforce our economic foundation to make Europe a top destination for global capital, enabled by deeper and more liquid capital markets. Third, we must bolster our legal foundation by defending the rule of law — and by uniting politically so that we can resist external pressures." A euro with a raised reserve currency status would bring a plethora of benefits to Europe, Lagarde added, including lower borrowing costs for regional governments, insulation from exchange rate volatility and protections for Europe from sanctions "or other coercive measures." "In short, it would allow Europe to better control its own destiny," Lagarde added. She isn't the only ECB official touting the possibilities for the euro, as confidence in the U.S. wavers. Last week, Isabel Schnabel, a member of the central bank's Executive Board, said the euro area could become a safe haven as Trump's tariffs policies take hold — giving the region "a historical opportunity to foster the international role of the euro." Market watchers who spoke to CNBC were divided on the euro's potential to seize some of the dollar's share of global FX holdings. Appearing on CNBC's "Europe Early Edition" on Friday, George Buckley, chief European economist at Nomura, said he could see upside ahead for the euro, as investors looked to diversify away from the greenback. Asked whether he agreed with Lagarde's assessment of the currency's potential, Buckley responded: "Certainly to some extent." "The dollar still is the biggest reserve currency in the world … the euro is still a distant second, but it's gaining in momentum quite significantly with all the things going on in the U.S.," he said. "I think, for sure there is going to be a lot more interest." Buckley said he was seeing suggestions that, in the current environment, investors might want to allocate their funds to assets other than the dollar. "If they're thinking of switching out of the dollar, the euro is an obvious choice," he told CNBC. "It's a huge trading bloc, and clearly the euro is benefiting from this. We think that the euro could be rising to around about $1.20 by the end of the year." The euro was trading at around $1.13 on Friday morning. Since the beginning of the year, the currency has gained more than 9% against the U.S. dollar — a move to $1.20 would mark an additional jump of around 6% from current Buckley was optimistic about the outlook for the euro, Aaron Hill, chief market analyst at FP Markets, told CNBC that the dollar's dominance "remains formidable." "The euro, while backed by the European Union's substantial economic weight, faces significant hurdles," he said. "Political fragmentation across member states and reliance on U.S. security frameworks limit its global influence." Hill added that the euro's limitations were unlikely to evaporate any time soon. "While rising U.S. debt and shifting global alliances warrant scrutiny, the euro lacks the cohesion and reach to challenge the dollar's supremacy in the near term," he told CNBC. "For now, the greenback's reign endures, unshaken." On Tuesday, John Plassard, senior investment specialist at Mirabaud Group, had told CNBC's "Europe Early Edition" that, with the U.S. dollar still accounting for almost 60% of global foreign exchange reserves, there was "no competition for the U.S. dollar" right now.
Yahoo
2 days ago
- Business
- Yahoo
Trading Day: Investors shrug off Nvidia caution
By Jamie McGeever ORLANDO, Florida (Reuters) - TRADING DAY Making sense of the forces driving global markets By Jamie McGeever, Markets Columnist Hawkish Fed minutes A day of drift - stocks lower and bond yields higher - was the hallmark of global markets on Wednesday as investors, in the absence of major fresh news on tariffs or developments in long-dated bonds, waited for Nvidia's results after the U.S. close. In my column today I look at why the United States may follow Japan in looking to shorten the maturity of its debt profile, as investors turn increasingly reluctant to hold long-dated bonds. More on that below, but first, a roundup of the main market moves. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. 1. Fed minutes saw rising inflation, jobless risks as ofMay meeting 2. Japan's quick-fix for bond markets sets a global testcase 3. Demand at Japan's 40-year bond auction sinks as fiscaldoubts prevail 4. Lagarde's euro 'battle cry' emphasizes EU cash need:Mike Dolan 5. ECB's Lagarde determined to complete her term,spokesperson says Today's Key Market Moves * Wall Street closes in the red, the S&P 500 and Dow off0.6% and the Nasdaq down 0.5%, tracking similar-sized losses inEurope. * Nvidia shares rose nearly 4% in after-hours tradingfollowing the chipmaker's earnings and outlook. * U.S. Treasury yields rise, by as much as 5 bps at thelonger end, bear-steepening the curve. A record $70 billion saleof 5-year notes goes well, and earlier, Japan's 40-year yieldrose after a weak auction. * Brazil's real is one of the biggest movers in FX, falling1% back through 5.70 per dollar. * Oil rises more than 1% on supply concerns as OPEC+agreed to leave its output policy unchanged and as the Chevron from exporting Venezuelan crude. Investors shrug off Nvidia caution Nvidia on Wednesday was the last of the U.S. 'Magnificent Seven' tech giants to report earnings. It announced record quarterly revenue in the first quarter of fiscal year 2026 but warned that tighter U.S. curbs on exports of its AI chips to key semiconductor market China will hit second quarter revenue. Investors cheered the news though, sending shares up as much as 4% immediately after the release. The relationship between Nvidia's share price and its long-term revenue outlook has been tight, and both were near recent highs before Wednesday's results. Nvidia said on Wednesday it expects revenue this quarter of around $45 billion, almost $1 billion below analysts' average estimate. As Deutsche Bank's Jim Reid pointed out earlier on Wednesday, there is still a "significant growth runway" required to reach the current consensus for fiscal year 2030 of around $375 billion, underlining the volatile nature of the stock. Indeed, although U.S. 'Big Tech' has taken a back seat to trade wars, U.S. fiscal concerns and trouble at the long end of global bond markets as the main drivers of investor sentiment recently, Nvidia shares haven't stood still - since the market low on April 7, they have rebounded 50%, outperforming the Roundhill 'Magnificent Seven' ETF and broader Nasdaq. The 'Mag 7' shares account for almost a third of the entire S&P 500 market cap, less than the peak of 35% late last year but up from the April low and still an extraordinarily high concentration of wealth in so few stocks. Big Tech has been quiet lately, but that's unlikely to last. The other big focus for investors in the U.S. session was the minutes of the Federal Reserve's May 6-7 policy meeting. There is usually something for everyone in these releases, but if there is one indication of where policymakers are leaning amid the fog of tariff uncertainty it may be this: "inflation" was mentioned 85 times, while "employment" and "labor market" were mentioned 23 times and 16 times, respectively. Looking ahead to Thursday, investors in Asia will react to Nvidia's earnings and guidance from after the U.S. closing bell the day before. Other highlights should be an expected interest rate cut from the Bank of Korea, revised U.S. GDP figures, and a $44 billion sale of 7-year U.S. Treasury bonds. Pressure on U.S. to follow Japan in debt profile rethink In the face off between heavily indebted developed economies and increasingly wary investors, Japan has blinked first, announcing that it will reconsider its debt profile strategy amid plunging demand for long-dated bonds. The U.S. could soon follow. Japan has the second-longest debt maturity profile of the G7 nations, with an average of around 9 years. Decades of ultra-low policy rates allowed Tokyo to borrow huge amounts at very low cost across the Japanese Government Bond yield curve. But in recent weeks, 30- and 40-year yields have soared to record highs, as appetite for long-dated paper at JGB auctions has dried up, a one-two punch that has forced officials to consider reducing issuance of long-term bonds in favor of short-dated debt. Many of the debt pressures bearing down on Tokyo are also being felt in Washington. The U.S. no longer boasts a triple-A credit rating, following the downgrade from Moody's earlier this month, and the non-partisan Congressional Budget Office projects federal debt held by the public will rise to a record 118.5% of GDP over the next decade from 97.8% last year. Net interest payments will rise to 4.1% of GDP from 3.1%, it predicts. Finally, there is Trump's tax-cut bill, which is projected to lump $3.8 trillion onto the federal debt over the next decade, according to the CBO. All this is creating understandable unease among investors, and even though foreign demand at bill auctions has remained high, on average, demand at bond auctions is the lowest in years. The Treasury may be forced to grab a page out of Japan's recent playbook and shorten its maturity profile. WAM The U.S. has the shortest 'weighted average maturity' (WAM) of all G7 countries at 71.7 months, according to the Treasury. That's due to a mix of factors, including rising deficits, Fed holdings of longer-dated bonds, and high liquidity and demand at the short end of the curve. But this figure has rarely been higher on its own terms. While the WAM reached a record 75 months briefly in 2023 and was elevated during the post-pandemic period, it has otherwise rarely exceeded 70 months. Indeed, the average going back to 1980 is 61.3 months. Shifts in the Treasury's WAM over the past half century have largely been driven by the interest rate environment, economic and financial crises and investor preference. While today's mix of market, economic and geopolitical trends is unique, it doesn't point to strengthening investor demand for long-dated bonds. The decades before the pandemic – the period known as the 'Great Moderation' – were generally marked by falling interest rates, flattening yield curves, and weak inflation. That era is over, or at least that's the growing consensus among investors and policymakers. This largely reflects the belief that inflation pressures in the coming decades will be higher than those seen during the 'Great Moderation' – particularly given the move toward high tariffs and protectionism – meaning interest rates are likely to remain 'higher for longer'. At the same time, America's apparent move toward isolationism and increased political volatility is apt to make global investors consider reducing their elevated exposure to dollar-denominated assets. That could make it harder for the Treasury to borrow long term at acceptable rates. PRESSURE POINTS These are broad assumptions, of course, and there are many moving parts. A sharp economic slowdown or recession could flatten the yield curve and spark an increase in longer-term issuance. But the curve is currently steepening, and the U.S. 'term premium' - the risk premium investors demand for lending 'long' to Treasury instead of rolling over 'short' loans - is the highest in over a decade and rising. This creates two problems. First, the Treasury may prefer to borrow longer term but not if yields are prohibitively high. Second, even though the U.S. can borrow more cheaply at the short end when the curve is steepening, this increases the 'rollover risk', meaning the government becomes more vulnerable to sudden moves in interest rates. T-bills' 22% share of overall outstanding debt is already above the Treasury Borrowing Advisory Committee's recommended 15-20% share, but it's hard to see that coming down much any time soon. Morgan Stanley analysts earlier this month outlined a "thought experiment" whereby low demand for notes and bonds could see the share of bills approach 30% by 2027. Ultimately, Treasury supply will largely depend on investor demand. If primary dealers indicate a preference for shorter-dated bonds, the 'WAM' will probably fall. Japan won't be the only developed economy rethinking its onerous borrowing plans. What could move markets tomorrow? * Reaction to Nvidia earnings * South Korea's interest rate decision * U.S. GDP, PCE inflation (Q1, second estimate) * U.S. weekly jobless claims * U.S. 7-year Treasury note auction * Several Fed officials speak at various events. They are:Richmond Fed President Thomas Barkin, Chicago Fed PresidentAustan Goolsbee, Fed Governor Adriana Kugler, and San FranciscoFed President Mary Daly. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. (By Jamie McGeever)
Eyewitness News
2 days ago
- Business
- Eyewitness News
ECB's Lagarde pitches euro alternative to dollar in 'fracturing' world
BERLIN - European Central Bank President Christine Lagarde on Monday said the global economic order backed by the US dollar was "fracturing" and made a pitch for the euro as a global reserve currency. "The global economy thrived on a foundation of openness and multilateralism underpinned by US leadership," Lagarde said in a speech at the Hertie School in Berlin. Washington's support for a rules-based international system and the dollar as a reserve currency had "set the stage for trade to flourish and finance to expand". The persistence of that US-led economic order over the past 80 years had "proved immensely beneficial to the European Union". "But today it is fracturing," she said in an apparent reference to global trade tensions fuelled by US President Donald Trump's threat to impose sweeping tariffs on key partners. "Multilateral cooperation is being replaced by zero-sum thinking and bilateral power plays. Openness is giving way to protectionism." The recent upheaval was also threatening "the dominant role of the US dollar", she said. The disintegration of the global economic order would "pose risks for Europe", Lagarde said. "Any change in the international order that leads to lower world trade or fragmentation into economic blocs will be detrimental to our economy," she said. But the retreat of the US dollar could also "open the door for the euro to play a greater international role". Increasing the international role of the euro would lower borrowing costs for EU member states, insulate the bloc from exchange rate fluctuations and would "allow Europe to better control its own destiny", Lagarde said. For that to happen, the European Union would need a "steadfast commitment to open trade" and to underpin its position with sufficient security capabilities. It would also need to strengthen its economy and defend the rule of law, she said. "This is not a privilege that will simply be given to us. We have to earn it."
Irish Times
3 days ago
- Business
- Irish Times
Christine Lagarde said to have discussed leaving ECB early to head WEF
Christine Lagarde has discussed cutting short her term as European Central Bank (ECB) president to become chair of the World Economic Forum (WEF) , according to WEF founder Klaus Schwab . Schwab, who left the WEF last month following misconduct allegations that he denies, said that practical arrangements – such as an apartment in Switzerland – had been made for Lagarde to take over the organisation before her tenure at the ECB ends in 2027. Any move by Lagarde to accelerate her departure from the ECB could trigger a succession race for the EU's top monetary authority. Schwab said Lagarde had been at the centre of a plan both had discussed for 'several years' for her to replace him as head of the WEF, the body behind the annual meetings of the business and political elite at the Swiss ski resort of Davos. READ MORE The latest conversation was in early April, when Schwab visited Lagarde in Frankfurt 'to discuss with her the leadership transition [at WEF] with myself remaining chair until she was ready to take over, at the latest, early 2027', he said in an interview. Lagarde, who has been on the WEF board of trustees since 2008, has a non-renewable eight-year term at the ECB which runs until the end of October 2027. Two people familiar with the matter referred to a mutual understanding about the timeline between both sides, which would have required Lagarde to leave at least 10 months before her term ends. One of them said she had agreed to take on the role on the proviso she could first bring inflation in line with the ECB's medium-term 2 per cent target. But they added that Lagarde also expressed some reservations about her ability to leave the ECB early at various points during the conversations about her future. An ECB spokesperson said: 'President Lagarde has always been fully committed to deliver on her mission and is determined to complete her term.' The spokesperson declined to comment further. The WEF said it was 'not in any position to comment on possible confidential discussions that may have taken place between our former chairman and Madame Lagarde'. The 69-year-old former IMF managing director and French finance minister would be the second ECB president after Wim Duisenberg to leave the Frankfurt-based institution early. The ECB presidency, one of the highest-profile financial jobs in Europe, has historically been subject to high-stakes political bargaining between individual member states. Schwab told the FT that an apartment in the WEF-owned Villa Mundi overlooking Lake Geneva had already been reserved for Lagarde, to give her 'somewhere to work as she took on more responsibilities and needed to be here'. Responding to claims by a whistleblower that his family had made private use of parts of the Villa Mundi complex, he added that the apartment was not for him but Lagarde. The WEF described his comments on the apartment as 'new information to us', adding that Villa Mundi was 'now being used by our staff and constituents'. Several people familiar with the WEF succession cautioned that no formal agreement between the Geneva-based institution and Lagarde had yet been struck. But two people with knowledge of discussions said the conversations between Lagarde and the forum about a leadership role had continued since Schwab's departure. The 87-year-old said in early April he intended to step down as chair of the board of WEF trustees in January 2027. But he was forced out by the WEF board only weeks later, after the anonymous whistleblower made a series of allegations including that he and his family received inappropriate financial benefits from the organisation. Schwab had been cleared of other misconduct allegations just weeks before the new complaint landed and has also rejected the latest allegations. The WEF founder told the FT that he was concerned that the long-planned handover to Lagarde might be jeopardised, because of his own early departure last month and potential damage to the institution's reputation. 'My fear is that if this continues and hangs over the organisation without a solution, Christine Lagarde will not take up the position as chair,' he said. 'I don't want to lose her. I want to make sure what has been built here ... is not destroyed.' The WEF, which has appointed former Nestlé chief Peter Brabeck-Letmathe as an interim chair, countered that it 'continues to operate from a position of strength', adding that it had record participation in recent events. Davos has become a set-piece event for chief executives and heads of government and a moneymaking machine, with 440 million Swiss francs in revenue in 2024. Lagarde could expect a doubling of her annual salary, which last year stood at €466,000, compared with about 1 million Swiss francs that Schwab made. Since taking office at the ECB in 2019, she has steered the central bank through Covid-19 and a once-in-a-generation surge in inflation that followed pandemic lockdowns and Russia's full-scale invasion of Ukraine. Price rises have since come back under control, with Eurozone inflation remaining at 2.2 per cent last month and ECB staff forecasting it will return to target next year. – Copyright The Financial Times Limited 2025
Wall Street Journal
3 days ago
- Business
- Wall Street Journal
ECB Says Lagarde ‘Determined' to Complete Her Term
The European Central Bank on Wednesday said that Christine Lagarde is determined to complete her term as president, which is scheduled to end in late 2027. The Financial Times earlier reported that Lagarde had been in discussions to join the World Economic Forum before the end of her term.
