The US dollar has sunk to a three-year low as the exodus from US assets gathers pace. Traders are anxious after Donald Trump launched another blistering attack on America’s top central banker yesterday, calling Jerome Powell “Mr Too Late” and “a major loser”, as the US president intensified his calls for US interest rate cuts.
The news has pushed the dollar down against a basket of currencies to its lowest level since March 2022. Against the yen, the dollar has hit a seven-month low, trading at ¥140 for the first time since last September. Last week, Trump posted that “Powell’s termination cannot come fast enough”.
The weakness of the dollar has pushed the pound up to its highest level against the US currency in seven months. Sterling climbed to $1.3423 in early trading, up around half a cent, to its highest level since last September.
Tony Sycamore, market analyst at IG, says Trump’s attacks on Powell are leading to a lack of confidence in the markets: "Their relationship has long been contentious. Despite appointing Powell in 2017, Trump has since expressed regret, criticising Powell for “bad decisions” and being “always too late and wrong.
"Powell has countered by warning that Trump’s tariffs could spur higher inflation and slower growth, contradicting Trump’s claims of his policies’ economic benefits."
Yesterday (when European markets were closed), there were further losses on Wall Street, where the Dow Jones Industrial Average lost another 2.5%, or almost 1,000 points. Investors are also disappointed at the lack of progress in trade talks, after the hefty tariffs announced by Trump earlier this month. This is creating a worrying situation, in which the dollar, the US stock markets and US government bond prices all are falling.
Typically in a crisis, US government debt and the dollar would rally as traders sought out a safe haven.
Jim Reid, market strategist at Deutsche Bank, explains: "The market reaction is arguably more about broader investor concerns that less credible US policymaking may erode the exorbitant privilege that has allowed the US to run high twin deficits than it is about the specific risk of political influence over the Fed’s rates policy.”
The International Monetary Fund (IMF) will give its verdict on the economic consequences of the US trade war later today, when it releases the latest forecasts in its World Economic Outlook.
Central bank governors, finance ministers, and other economic leaders are heading to Washington DC for the annual IMF-World Bank spring meetings. Rachel Reeves will fly to Washington this week too. The UK chancellor will use the spring meetings of the IMF to make the case that free trade is in both British and global interests.
The agenda
• 9am BST: ECB Survey of Professional Forecasters
• 2pm BST: IMF releases its latest World Economic Outlook.
• 3pm BST: EU Consumer Confidence report
• 3.15pm: IMF releases its Global Financial Stability Report
We'll be tracking all the main events throughout the day … |
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