Dollar wallows near 3-1/2-year low as Fed cuts, Trump bill in focus
The greenback was pinned near its weakest since September 2021 on the euro, and was at its lowest since January 2015 versus the Swiss franc.
Powell reiterated on Tuesday at the European Central Bank's annual conference in Sintra, Portugal that the Fed is taking a patient approach to further interest rate cuts, but didn't rule out a reduction at this month's meeting, saying everything depends on incoming data.
That raises the stakes for the monthly non-farm payrolls report on Thursday. Indications of labour market resilience in the US JOLTS figures overnight saw the dollar rise off Tuesday's lows.
The dollar index, which measures the currency against six major counterparts, edged up slightly to 96.677, but didn't stray far from the overnight low of 96.373.
Markets are also keeping a close watch on Trump's massive tax-and-spending bill, which could add US$3.3 trillion to the national debt. The bill, which was passed by the US Senate, will return to the House for final approval.
"The confirmation that this is an increase in issuance, an increase in government spending well beyond its means, is not necessarily good news for the Treasury market, and it's arguably one of the reasons the dollar's going down," said Rodrigo Catril, a strategist at National Australia Bank.
Also weighing on the US currency has been Trump's continued attacks on Powell, putting Fed independence in the spotlight. On Monday, the President sent the Fed Chair a list of global central bank key rates adorned with handwritten commentary saying the US rate should be between Japan's 0.5 per cent and Denmark's 1.75 per cent, and telling him he was "as usual, 'too late.'"
The greenback held steady at 0.7906 Swiss franc, after dipping as low as 0.7873 franc in the previous session.
The euro was flat at US$1.1802, sticking close to the overnight peak of US$1.1829.
Sterling edged up slightly to US$1.37435, approaching Tuesday's high of US$1.3787, a level last seen in October 2021.
The dollar made up a little ground against the yen, adding 0.1 per cent to 143.59 yen, following the prior session's 0.4 per cent slide.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
3 hours ago
- New Straits Times
Trump says Vietnam to face 20pct tariff under 'great' deal
WASHINGTON: President Donald Trump announced Wednesday that he had struck a trade deal with Vietnam under which the country would face a minimum 20 per cent tariff and open its market to US products. The deal comes a week ahead of Trump's self-imposed July 9 deadline for steeper tariffs on US trade partners to take effect if agreements had not been reached. Trump initially announced that the trade deal had been reached, without providing details. Shares in clothing companies and sport equipment manufacturers -- which have a large footprint in Vietnam -- rose on the news, but later declined sharply after the president released details including the continued tariffs. "It is my Great Honor to announce that I have just made a Trade Deal with the Socialist Republic of Vietnam after speaking with To Lam, the Highly Respected General Secretary of the Communist Party of Vietnam," Trump wrote on his Truth Social platform. He said that under the "Great Deal of Cooperation," imports of Vietnamese goods will face a 20 per cent US tariff, while goods that pass through Vietnam from other countries -- so-called "transshipping" -- will see a steeper 40 per cent tariff. "In return, Vietnam will do something that they have never done before, give the United States of America TOTAL ACCESS to their Markets for Trade," he said. "In other words, they will 'OPEN THEIR MARKET TO THE UNITED STATES,' meaning that we will be able to sell our product into Vietnam at ZERO Tariff," he added. The president said he believed US-made SUVs, "which do so well in the United States, will be a wonderful addition to the various product lines within Vietnam." Trump's announcement comes a week before the US has threatened to reimpose steep tariffs on dozens of economies, including the EU and Japan, many of which are still scrambling to reach deals that would protect them from the measures. Those higher tariffs are part of a package Trump initially imposed in April, citing a lack of "reciprocity" in trading relationships, before announcing a temporary lowering to 10 per cent. Without a deal, Vietnam's "reciprocal tariff" would have risen from the baseline 10 per cent to 46 per cent. Since April, Washington had so far only announced a pact with Britain and a deal to temporarily lower retaliatory duties with China.
The Star
8 hours ago
- The Star
Bonded to interest rates
PETALING JAYA: The strong demand for ringgit-denominated bonds among foreign investors who have shifted their portfolio to minimise risks from US president Donald Trump's policies will depend on the trajectory of central bank monetary policy going forward, say bond specialists. Experts said that if the US Federal Reserve (Fed) decides to maintain the benchmark US interest rate while Bank Negara cuts the overnight policy rate (OPR) to support the domestic economy leading to widening yield differentials between US and Malaysian government securities (MGS), then investors chasing yields could shift their focus back to US treasuries (UST). Bond yields represent the rate of return an investor receives on a bond upon its maturity. The Fed maintained the benchmark interest rate at the 4.25% to 4.5% range in the May meeting as the US central bank sees the economy growing at a modest pace, with inflation slightly above its 2% target. Bank Negara has also held the OPR steady at 3% in its recent meeting, but reduced the statutory reserve requirement (SRR) to 1% from 2% that resulted in the release of an additional RM19bil in liquidity into the banking system to support the economy. However, despite the SRR decision, experts said there was still a high risk for an OPR cut in the second half of the year. In comparison, the bond yield spread between the 10-year UST and the 10-year MGS stood at 0.84% on June 5, 2025, based on the Bond Pricing Agency Malaysia's (BPAM) data. The 10-year UST on that date was at 4.40% and the 10-year MGS was at 3.56%. BPAM chief executive officer Meor Amri Meor Ayob told StarBiz several challenges could weigh on the ringgit bond market in 2025, with US monetary policy being one of them. 'UST continues to offer relatively higher yields compared to MGS, which may limit the appeal of MGS going forward. 'Moreover, with growing expectations that Bank Negara may cut the OPR in the second half of the year, yield differentials could widen further, potentially dampening foreign appetite for ringgit-denominated bonds. 'If the Fed maintains the current interest rates while Bank Negara cuts its OPR, the widening yield between the UST and MGS differential could reduce the attractiveness of Malaysian bonds to foreign investors and put pressure on the local ringgit,' he added. Meor Amri said another challenge lies in geopolitical uncertainties, especially around US trade policies under President Trump's administration, which could trigger market volatility and risk-off sentiment. He said the recent surge in foreign demand for ringgit bonds in March and April 2025 was driven by uncertainty surrounding President Trump's flip-flopping tariff policies and his proposed 'One Big Beautiful Bill'. These developments have prompted some bond investors to reduce their exposure to UST and seek diversification in emerging market assets such as MGS, he noted. Foreign net buying of Malaysian bonds surged to RM10.2bil in April this year compared to RM3.2bil in March, marking the second consecutive month of net inflows, despite 'Liberation Day' tariffs announced on April 2, 2025. The increase was primarily driven by strong demand for MGS and government investment issues (GII), which attracted RM9.7bil of inflows (March inflow: RM3bil), as well as the shorter-term Malaysian Treasury Bills (MTB) and Malaysian Islamic Treasury Bills (MITB). OCBC Bank (M) Bhd head of global markets Stantley Tan said the future demand from foreign investors for ringgit-denominated bonds would largely depend on a variety of macroeconomic and domestic factors. Since the onset of 2025, he said global economic uncertainties have escalated, primarily due to rising geopolitical risks and inconsistencies in US tariff policies. He said the imposition of substantial trade tariffs by the United States on its trading partners has disrupted global trade flows and increased the risk of a recession, particularly within the United States. As trade negotiations continue, investors have also rebalanced their portfolios, reallocating investments towards emerging markets and economies less impacted by the tariff conflicts. 'On the domestic front, Bank Negara has reiterated its confidence in the resilience of Malaysia's economy, which is fundamentally supported by robust domestic demand. 'However, the tone of the monetary policy committee (MPC) statement has shifted from cautious optimism to a neutral-dovish stance, reflecting the heightened external risks. 'In its latest meeting, the MPC reduced the SRR by 1% to provide additional liquidity support to the economy,' Tan said. He said the ringgit bond market has started to price in the possibility of a policy rate cut in the coming months following the central bank's slightly dovish tone. However, he said the risks to the current bond valuations remain, particularly if the economy proves resilient, prompting Bank Negara to hold policy rate steady, which could lead to a repricing of the bond market. 'A significant fiscal improvement by the government could mitigate the risk of a sell-off by easing the supply of MGS and GII in future issuances. Additionally, external risks may arise from the potential resolution of the US fiscal situation, which is currently under intense scrutiny by global investors. Should the US fiscal outlook improves, there is a possibility that investors may shift back to safe-haven assets, resulting in potential outflows from emerging markets including Malaysia,' Tan noted. RAM Rating Services Bhd economist Nadia Mazlan said foreign investor appetite for Malaysian bonds may continue to be under pressure in 2025 amid continued heightened uncertainties arising from US protectionist trade policies. She said the 'risk-off' sentiments among investors at the start of the year and at the onset of the 'Liberation Day' tariffs have already triggered a sell-off across both the equity and bond markets, including in Malaysia. Nadia said while there was some temporary reprieve from the postponement of higher reciprocal tariffs and signs of easing US-China trade tensions, which contributed to the net inflows in March and April, the continued unpredictability of US policies may still haunt global investors. 'The continued easing of market volatility recently may help support investor appetite for risker emerging market bonds in the short term, but it may be capped by the still-elevated uncertainties, especially as the 90-day pause on higher reciprocal tariffs is nearing its end. 'The potential future volatility from other proposed tariffs will likely leave foreign investors teetering on the edge,' she said. However, she said a tapering yield differential between the UST and MGS may help buoy some foreign demand for domestic bonds this year. 'With the Fed widely expected to reduce the federal funds rate in the face of slower economic growth, Bank Negara is expected to keep its OPR at 3%. This could help compress the UST-MGS yield spread, which should increase the appeal of Malaysian bonds and strengthen the ringgit this year. 'The country's strong economic fundamentals and prudent fiscal discipline also play important roles in making the country an attractive investment destination. 'Therefore, maintaining stable and effective domestic policies is essential to strengthening foreign investor confidence while ongoing improvements in fiscal metrics could further support demand for Malaysian bonds,' Nadia added.
The Star
8 hours ago
- The Star
Trump's 35% tariff threat feeds Japan's worst-case scenario fear
US President Donald Trump threatened Japan with tariffs of up to 35% as he ramped up tensions for a third straight day, fueling fears of a worst-case scenario among market players and raising doubts over Tokyo's tactics in trade talks. Japan should be forced to "pay 30%, 35% or whatever the number is that we determine, because we also have a very big trade deficit with Japan,' Trump said, again flagging the possibility that across-the-board tariffs could go much higher than the 24% initially penciled in for July 9. "I'm not sure we're going to make a deal. I doubt it with Japan, they're very tough. You have to understand, they're very spoiled.' Market participants and analysts warned against taking Trump's comments at face value and suggested that some kind of deal will eventually get done. But they also warned that Prime Minister Shigeru Ishiba's government may need to change tack from a friendly and firm stance that is now leading the two sides to brinkmanship. "There is some risk of a US tantrum that results in higher punitive actions by Washington this month,' said Kurt Tong, a former senior US diplomat in Asia who's now a managing partner at the Asia Group. "If that happens, Japan may have no choice but to hit back with its own specific countermeasures.' Trump's latest threat fits in with a high-pressure deal-making strategy that sometimes results in big last-minute concessions on both sides, as seen with China, but market players still need to game out how to position themselves should talks founder. While few analysts see Japan's stocks collapsing on a no-deal scenario, some of them forecast the Nikkei 225 to fall into the 38,000 range, a decline of more than 4%, rather than rallying above 40,000 if there's an agreement. The Nikkei 225 edged down 0.6% to close at 39,762 on Wednesday while the yen was trading at 143.88 against the dollar, down around 0.3%. Japan has so far stood firm in negotiations over across-the-board reciprocal tariffs, insisting that they be removed along with additional sectoral tariffs on autos, steel and aluminum. The car duties are particularly painful for Japan as the industry contributes the equivalent of almost 10% of gross domestic product and employs around 8% of the workforce. Tokyo has insisted that a "win-win' deal must encompass all the tariffs in one go with Ishiba preferring no deal to a bad deal ahead of a July 20 upper house election. The prime minister on Wednesday reiterated his view that focusing on jobs and investment in the US was the way forward, just like it was for Nippon Steel as it patiently sought to change Trump's view and take over US Steel. "Japan is the biggest global investor in the US and the world's biggest contributor to US jobs,' Ishiba said in Tokyo on Wednesday. "That means Japan is different from other countries.' But as July 9 gets closer, some observers say more needs to be done to convince the US to back off. "We have to work on Trump himself, to first try to avoid the tariffs to be imposed from July 9,' said Ichiro Fujisaki, former Japanese ambassador to the US, adding that the president's remarks show that Tokyo hasn't brought enough to the table yet. "We don't have something like rare earths but the US is dependent on Japanese industry as well. About half of materials for making semiconductors come from Japanese industry,' Fujisaki said, pointing to a possible area of leverage, too. In the meantime, market players are evaluating the potential scale of the fallout. "There is a lot more risk of things falling apart than is being priced in by the market,' said Zuhair Khan, a fund manager at UBP Investments. "There is always the risk of a policy blunder by either side.' He points to the 32,000 Nikkei level on the day Trump first announced the reciprocal tariffs. "If the probability of a no deal is 25% then the Nikkei should be at 38,000.' What Bloomberg Economics Says... "If Japan is ultimately forced to pay reciprocal tariffs at those rates, on top of the 24% rate announced on 'Liberation Day' - currently suspended at 10% - the macroeconomic fallout would be sizable. Our estimate through a model of global trade suggests a medium-term GDP hit of around 1.2%, roughly double the 0.6% drag expected under the current levy.' - Taro Kimura, economist For the full report, click here. The point of imposing a deadline in negotiations is to create an opportunity for leverage, so it's not surprising to see Trump pushing high tariffs as a threat to push for better deals as the date approaches, said Phillip Wool, head of portfolio management at Rayliant Global Advisors Ltd. "There's also an element of political theater here, as Trump's narrative to American voters is that the US has been bullied on trade for so long, and there's clearly a desire to look 'tough' on trade,' Wool said. "But there has to be a face-saving deal at some point so that it looks like the negotiation was truly a success as opposed to the mutually assured destruction of impasse and perpetually high tariffs.' Like some other market players, Wool is wary of an overly pessimistic knee-jerk response to each remark Trump makes. If there is a big selloff in a worst-case scenario, Wool sees it as a great buying opportunity for long-term, active investors. Strategists are split on how a bad scenario might play out for the yen. While some such as SBI Liquidity Market Co.'s Marito Ueda see the possibility of risk aversion sparking a strengthening of Japan's currency to the 138 range against the dollar, others see a weakening as more likely. A stalemate in trade talks would likely delay the Bank of Japan's next interest rate hike, especially if it led to tariffs of up to 35% in the meantime, said Akira Moroga, chief market strategist at Aozora Bank. Movement would slow after the 145 mark, making a push past 147 difficult, he said. Still, the consensus is that a deal will be reached sooner or later, and that Japan will have to concede more ground to achieve it. "If it's concluded I don't think it's going to be a win-win situation,' said Fujisaki. "Maybe a capital-letter 'WIN' for US, but a small letter 'win' for Japan.' --With assistance from Momoka Yokoyama, Toshiro Hasegawa, Umesh Desai, Hidenori Yamanaka, Mari Kiyohara, Aya Wagatsuma and Akemi Terukina. - Bloomberg
