Market News
Dollar slips on Fed credibility concerns, euro close to 4-year high - REUTERS
Summary
- Dollar at multi-year lows as euro briefly tops $1.1700
- More reports Trump considering early pick for Fed chair
- End of US 'exceptionalism' undermining dollar
SYDNEY/GDANSK, June 26 (Reuters) - The dollar slipped to multi-year lows against the euro and Swiss franc on Thursday as concerns about the future independence of the U.S. Federal Reserve undermined faith in the soundness of the country's monetary policy.
According to a Wall Street Journal report, U.S. President Donald Trump had toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October, aiming to undermine his position.
"From a market perspective, of course, not only does that undermine the Fed's credibility and independence, clearly, (but) it's a risk to the outlook for U.S. rates as well," said Nick Rees, head of macro research at Monex Europe. "Those concerns weigh on the dollar this morning," Rees said, adding that pressure on the currency from Trump team's rhetoric could intensify ahead of the expiry on July 9 of "reciprocal tariff" suspensions with trading partners including the European Union. Trump called Powell "terrible" on Wednesday for not lowering interest rates sharply, while the Fed Chair was telling the Senate that policy had to be cautious as the president's tariff plans were a risk to inflation. Advertisement · Scroll to continue Report This Ad Markets have nudged up the chance of a rate cut at the Fed's next meeting in July to 25%, from just 12% a week ago, and are pricing in 64 basis points of cuts by year-end, up from around 46 basis points last Friday.
NOT SO EXCEPTIONAL
The dollar was under broad pressure as the euro gained 0.6% to $1.1729 , its highest since September 2021.
Sterling rose 0.65% to $1.3753, its highest since October 2021, while the dollar was at its lowest in more than a decade on the Swiss franc at 0.7983 . The franc also struck a record peak on the yen around 180.55 overnight.
However, the safe-haven Japanese currency was strengthening across the board after losses in the previous session.
"From a yen perspective, traders are just looking for next steps from the Bank of Japan," Rees said. "We think (the rate path) is going to be fairly moderate, but we do think it supports sustained yen appreciation in the medium term."
After raising short-term interest rates to 0.5% in January, the Bank of Japan has signalled readiness to raise rates further.
However, its policymakers called for keeping interest rates steady for the time being due to uncertainty over the impact of U.S. tariffs on Japan's economy, a summary of opinions at the bank's June policy meeting showed on Wednesday.
The greenback lost nearly 1% on the yen to 143.91, while the dollar index sank to its lowest since early 2022 at 97.09 .
Trump's chaotic tariff policies are also coming back into focus as the clock ticks down to his July 9 deadline for trade deals.
JPMorgan on Wednesday warned the hit from tariffs would slow U.S. economic growth and lift inflation, resulting in a 40% chance of a recession.
"The risk of additional negative shocks is elevated, and we expect U.S. tariff rates to move higher," JPMorgan analysts said in their report. "The upshot of these developments is that our baseline scenario incorporates the end of a phase of U.S. exceptionalism."
The ending of "exceptionalism" has been a major theme in the dollar's decline in recent months, as investors question its dominant reserve currency status and as the main safe haven among currencies.
Reporting by Wayne Cole in Sydney and Linda Pasquini in Gdansk Additional reporting by Ankur Banerjee and Kevin Buckland Editing by Shri Navaratnam, Kate Mayberry, Lincoln Feast and Gareth Jones
