Africa Advances Local Currency Payment Systems Amid Dollar Pressure and Trump Warnings

Economic

Forex

Summary:

Africa is making notable progress in building local currency payment networks to cut trade costs and boost regional integration, despite geopolitical tensions and threats of retaliation from U.S. President Donald Trump....

Shifting From Aspiration to Implementation

Africa’s decades-long vision of settling trade in local currencies is evolving into operational reality. As of 2025, the Pan-African Payments and Settlement System (PAPSS) has expanded to 15 countries and over 150 banks, aiming to reduce reliance on costly dollar transactions. The goal is not to challenge the dollar’s dominance per se, but to address structural inefficiencies in Africa’s intra-regional trade, where settlements in third-party global currencies remain prohibitively expensive.

According to PAPSS estimates, cross-border transactions that currently cost between 10% to 30% of deal value due to correspondent banking intermediaries could see costs fall to around 1% with local settlement. For a $200 million transaction, this represents a potential saving of tens of millions of dollars. The broader implication is a projected $5 billion in hard currency savings annually, primarily through the use of African currencies such as the naira, cedi, or rand.

Domestic Cost Considerations Over Ideological Alignment

While the global debate over "de-dollarisation" intensifies, African stakeholders like PAPSS CEO Mike Ogbalu emphasize that their motivation is cost efficiency, not ideological divergence from the U.S.-led financial system. However, the operational logic overlaps with efforts by countries like China and Russia that seek alternative trade systems due to geopolitical constraints. Although the cause of Africa’s payment reform is primarily economic, its alignment with these larger shifts may influence how its actions are perceived on the global stage.

Africa’s dependence on external correspondent banks has long constrained trade integration. With 84% of the continent’s trade occurring with non-African partners, intra-regional flows remain thin. This imbalance reflects both logistical and financial barriers. According to the United Nations, Africa’s trade costs are 50% above the global average— a statistic that encapsulates both physical infrastructure challenges and outdated financial settlement systems.

Support from Multilateral Lenders and Regional Leadership

The International Finance Corporation, a private sector arm of the World Bank, has already begun offering loans in local currencies to mitigate exchange rate risks for African businesses. This strategic move complements PAPSS by easing the financial burden of dollar-denominated liabilities, which often constrain small and medium-sized enterprises not earning in hard currency.

Meanwhile, South Africa, leveraging its presidency of the G20, is actively pushing for regional payment systems to be prioritized on the global policy agenda. At recent G20 finance minister meetings, South African central bank governor Lesetja Kganyago highlighted the unusually high cost of cross-border transactions in Africa and urged meaningful steps to facilitate local currency trade settlements.

Trump's Rhetoric and the Risk of Global Fallout

Despite Africa’s practical and internally driven motives, its efforts have not escaped the scrutiny of U.S. President Donald Trump, who has adopted an aggressive stance against global shifts away from the dollar. Following BRICS’ discussion of a potential shared currency and reduced reliance on the U.S. dollar, Trump issued threats of 100% tariffs, warning that any nation moving in that direction could face economic penalties.

Such statements underscore the risk that Africa’s payment reforms—though not inherently political—could be interpreted as part of a broader anti-dollar movement. Syracuse University’s Daniel McDowell argues that the geopolitical context may entangle Africa’s domestic reforms with the more assertive financial realignment efforts led by China and Russia.

Africa’s pursuit of local currency payment systems reflects a growing commitment to practical economic reform aimed at reducing trade costs and enhancing regional integration. While not framed as a political challenge to U.S. monetary dominance, the overlap with broader global trends in financial realignment invites international attention—and potential backlash. As the G20 convenes again in July, the success of initiatives like PAPSS will depend not only on technical implementation but also on navigating the geopolitical tension surrounding the future of the dollar.

Source: Reuters

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Glendon

Economic

Forex

U.K. retail sales slumped in May, overturning the prior month’s hefty gains, with food store sales in particular declining sharply on a monthly basis.

Retail sales slipped by 2.7% last month on a monthly basis, dropping from a healthy revised gain of 1.3% in April, according to data released by the Office of National Statistics data earlier Friday.

Economists had predicted that retail sales, which mostly reflect goods and are not adjusted for inflation, would drop by 0.5% on a monthly basis.

Retail sales fell by 1.3% on an annual basis, having increased by an impressive 5.0% in April as sunny weather helped British consumers return to the high streets, particularly in food stores.

Data released earlier this week showed that U.S. retail sales also fell heavily in May, falling 0.9% last month, the largest decrease since January, after a downwardly revised 0.1% dip in April.

The second straight monthly decline unwound the bulk of the tariff-driven surge in March.

President Donald Trump’s aggressive and often shifting tariff position has heightened economic uncertainty, making it difficult for businesses to plan ahead.

U.K. consumer sentiment improved in June to its highest level since December, but remained firmly in negative territory, survey data from the British Retail Consortium showed on Thursday.

"Gen Z saw the biggest improvement, in both economic outlook and their expectations of their future finances, with younger generations remaining the most optimistic about the future," said BRC Chief Executive Helen Dickinson.

"This rising optimism may also reflect the increase in minimum wage from April, with many younger people expected to have seen a significant uplift in their pay packet. Expectations of future spending – both in retail and more generally – rose slightly, with more spending on groceries planned over the coming months."

The Bank of England decided to keep its benchmark Bank Rate at 4.5% at its meeting on Thursday, but said it was focused on risks from a weaker labor market and from higher energy prices as conflict escalates in the Middle East.

"Interest rates remain on a gradual downward path," Governor Andrew Bailey said in a statement, although policymakers said in minutes of the meeting that interest rates were not on a pre-set path.

"The world is highly unpredictable. In the U.K. we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation," Bailey said.

Source: Investing

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Gerik

Economic

Strategic Shift Toward Midcaps After Trade Tensions Ease

Fidelity International has repositioned its multi-asset strategy to emphasize midcap equities, particularly in Japan, Germany, and China. According to portfolio manager George Efstathopoulos, the fund's current allocation to midcaps from these three economies now accounts for approximately 11% of its growth and income portfolio — a sharp contrast from the near-absence of such positions 18 months earlier. This transition signals a recalibration of market expectations now that the most disruptive phase of tariff-driven volatility may have passed.

The decision to scale into midcap assets followed what Efstathopoulos described as “Liberation Day” — the market panic that erupted on April 2 after a fresh wave of U.S. tariff threats. That date marked the nadir of equity sentiment, prompting a near-term capitulation that Fidelity interpreted as a signal of bottoming risk. Since then, key midcap indexes have rebounded: Japan’s MSCI Mid Cap Index is up over 4%, Germany’s DAX Mid-Cap Index has gained nearly 6%, and Chinese midcaps have edged up by about 0.5%. These returns suggest a recovery narrative taking hold, despite looming geopolitical and trade uncertainties.

Domestic Growth as a Buffer Against Global Shocks

A key rationale behind Fidelity's preference for midcaps is their reduced sensitivity to global trade friction and stronger ties to domestic consumption. This approach is particularly pronounced in Germany, where mid-sized firms are seen as direct beneficiaries of a historic pivot toward fiscal expansion. In contrast to traditional export-heavy giants, German midcaps now appear positioned to capture a more internally driven recovery cycle, aided by new government spending initiatives announced earlier this year.

In Japan, Fidelity views current macro conditions as indicative of a structural transformation. With moderate and sustainable inflation finally taking root — what Efstathopoulos calls “good inflation” — the economy is showing signs of healthier consumer activity. Midcaps, often more flexible and domestically oriented than their large-cap counterparts, are expected to outperform in this environment.

China, meanwhile, remains attractive due to ongoing prospects for fiscal stimulus and the implicit support of state-backed institutions. Although performance has lagged relative to Japan and Germany, the perception of downside insulation — including government intervention during market dips — underpins continued exposure. Fidelity sees limited risk of severe drawdowns, making Chinese midcaps a component of a broader strategy to balance growth potential with managed volatility.

Performance and Portfolio Positioning

The broader strategy, managed from Singapore and part of Fidelity’s global multi-asset fund, has returned nearly 14.8% over three years in U.S. dollar terms. The firm’s confidence in its midcap exposure reflects a forward-looking view that blends policy analysis, domestic economic shifts, and recalibrated global trade dynamics. With the 90-day tariff truce set to expire on July 8, Fidelity’s positioning suggests a belief that either a negotiated extension or domestic resilience will mitigate further downside risks.

Fidelity’s pivot toward midcap equities in Germany, Japan, and China is grounded in the view that recent tariff-induced volatility has peaked and that domestic economic shifts are reshaping the risk-reward profile of smaller firms. By focusing on companies with stronger internal demand links, the strategy aims to reduce exposure to global trade fragmentation while maintaining exposure to growth through targeted regional bets. As geopolitical tensions and trade policy timelines unfold, this allocation signals a conviction in structural resilience over cyclical speculation.

Source: Reuters

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Gerik

Economic

Stalled Progress Despite Diplomatic Engagements

Japan’s chief trade negotiator, Ryosei Akazawa, confirmed in a recent press conference that the trade dialogue with the United States is still shrouded in uncertainty. Despite ongoing efforts from both sides, no agreement has been reached to eliminate the 25% tariff imposed on Japanese cars or the 24% reciprocal tariff on U.S. goods, which remains suspended until July 9. Akazawa noted that while this date holds importance, it does not serve as a fixed deadline for concluding negotiations.

The lack of a breakthrough is compounded by Japan's domestic political timeline. With the upper house election scheduled for July 20, political analysts argue that Prime Minister Shigeru Ishiba is constrained in offering compromises—particularly in sectors like agriculture that remain politically sensitive. The alignment of trade talks with the electoral calendar complicates any potential for meaningful concessions, as pre-election periods typically heighten political caution and resistance to controversial decisions.

Economic Ramifications and Sectoral Vulnerability

The ongoing tariff dispute is already impacting Japan’s economy. Export data from May reveal the first year-on-year decline in eight months, primarily driven by diminished overseas demand for automobiles. Major manufacturers such as Toyota are directly affected by the tariffs, contributing to a broader downturn in trade figures. While the timing of these developments may not point to a single direct influence, the correlation between heightened tariff pressure and export contraction suggests that prolonged trade friction is undermining Japan’s economic resilience, especially given its export-oriented structure.

Akazawa’s repeated use of the term "fog" underscores the lack of visibility in forecasting a resolution. While ministerial-level talks are ongoing, the absence of clear strategic concessions or timelines from either side raises the possibility that negotiations may persist well beyond July. The uncertainty risks not only delaying tariff relief but also exacerbating investor anxiety, supply chain disruption, and industrial stagnation—factors that may deepen vulnerabilities in Japan’s already cautious economic recovery.

The Japan–US trade standoff illustrates how diplomatic gridlock, domestic politics, and sectoral exposure can interact to constrain economic performance. While the current impasse may not yet signify a collapse in relations, the continued lack of clarity poses risks to both trade-dependent industries and broader macroeconomic stability. As July approaches, attention will center on whether negotiators can pivot from ambiguity to actionable outcomes.

Source: Reuters

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Isaac Bennett

Russia-Ukraine Conflict

At least 14 people were injured when Russian drones attacked the Ukrainian Black Sea city of Odesa overnight, damaging high-rise buildings and railway infrastructure, local authorities said on Friday.

Odesa is Ukraine's largest Black Sea port, key for imports and exports, and has been under constant missile and drone attacks by Russia since the war began.

"Despite the active work of air defence forces, there is damage to civilian infrastructure, including residential buildings, a higher education institution, a gas pipeline and private cars," local governor Oleh Kiper said on Telegram messenger.

Kiper released photos of burning houses and charred high-rise buildings.

Local emergencies service said that during the attack there were at least 10 drone strikes on residential buildings, causing massive fires.

Ukraine's air force said on Friday that Russia had launched 86 drones on Ukraine overnight.

The military noted its air defence units shot down 34 drones while another 36 drones were lost - in reference to the Ukrainian military using electronic warfare to redirect them - or they were drone simulators that did not carry warheads.

However, the military reported that drones hit 8 locations.

Ukrainian state railways Ukrzaliznytsia reported that Odesa railway station was damaged during the attack, with power wires and rails damaged.

Russian drones also attacked Kharkiv in northeastern Ukraine overnight, damaging several private and multi-storey houses, Kharkiv officials said.

Source: Reuters

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Gerik

Economic

Oil Prices Rise Amid Geopolitical Uncertainty

U.S. benchmark crude oil increased by 15 cents to $73.65 per barrel, while Brent crude rose by 19 cents to $76.89 per barrel. These gains reflect ongoing market concerns about the escalating Israel-Iran conflict, with investors wary of disruptions to oil production and shipping routes. Iran, a major oil producer, controls the Strait of Hormuz, through which a significant portion of the world’s oil passes. As a result, any military escalation in the region could lead to higher oil prices and supply disruptions.

The White House’s statement that President Donald Trump would decide within the next two weeks on whether the U.S. would join Israel in its military actions added to the uncertainty. While Trump has indicated that he still views diplomacy as an option, the geopolitical risk is enough to fuel concerns in global markets, especially in the oil sector. Additionally, Trump's tariff agenda continues to be a major factor impacting market sentiment.

Mixed Performance in Asian Markets

Asian stock markets showed mixed results on Friday as traders reacted to geopolitical concerns and economic data. Japan’s Nikkei 225 index gained 0.1% to close at 38,538.14, buoyed by news that Japan’s core inflation rate had risen to 3.7% in May. This increase in inflation adds to the challenges faced by Prime Minister Shigeru Ishiba's government and the Bank of Japan, which is already dealing with the impact of U.S. trade policies.

In Hong Kong, the Hang Seng index jumped 1.2% to 23,504.59, while China’s Shanghai Composite gained 0.1%, reversing earlier losses to close at 3,364.83. These gains came after the People’s Bank of China kept its 1-year and 5-year loan prime rates unchanged, as widely expected. Meanwhile, Australia’s S&P/ASX 200 slipped 0.3% to 8,500.40, and South Korea’s Kospi climbed 1.2% to 3,014.05.

Global Economic Concerns and Central Bank Responses

The geopolitical tensions between Israel and Iran have contributed to cautious risk sentiment across markets. In response to these risks, the Bank of England held its main interest rate steady at 4.25%, citing concerns about the potential escalation of the Israel-Iran conflict. The central bank expressed caution about the broader economic impacts of the situation, which remains a key factor influencing global market movements.

In currency markets, the U.S. dollar weakened slightly against the Japanese yen, slipping to 145.28 yen from 145.46 yen. The euro, on the other hand, rose to $1.1530 from $1.1498. These movements reflect the broader market uncertainty driven by geopolitical developments and ongoing trade concerns.

The combination of rising oil prices and mixed Asian stock market performance highlights the cautious sentiment in global financial markets as investors await further developments on the Israel-Iran conflict and the potential involvement of the U.S. With inflationary concerns in Japan and continued geopolitical risks, markets are likely to remain volatile in the short term, with oil prices remaining a key indicator of global market stability.

Source: AP

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Gerik

Economic

Commodity

Impact of Export Restrictions and Cautious Customs Process

In early April, China announced export restrictions on seven medium-to-heavy rare earth products, including certain types of magnets. As the world’s largest producer, responsible for over 90% of global rare earth magnet supply, China’s move has severely impacted sectors such as automotive, aerospace, semiconductors, and military equipment. Industry sources revealed that Chinese customs officials have become more cautious in processing rare earth shipments, particularly magnets, due to the lack of clarity in classification codes for various types of rare earth products.

While Beijing has promised to expedite the approval process for export licenses following an agreement with the U.S. to ease trade tensions, the immediate effect has been a slowdown in exports. In May, China exported only 1,238 metric tons of rare earth permanent magnets, a 52.9% decrease from April and the lowest single-month figure since February 2020. This represents a year-on-year decline of 74%, highlighting the impact of the new restrictions.

Ongoing Confusion and Delays in Export Licenses

The confusion surrounding the application of export curbs has led to delays in the processing of some shipments, particularly lower-performance rare earth magnets used in consumer electronics and appliances. While some companies, such as JL MAG Rare-Earth and Innuovo Technology, have secured export licenses for specific clients, the overall uncertainty continues to weigh on the industry.

In the first five months of 2025, exports of rare earth magnets totaled 19,132 tons, a 14.5% decrease from the same period last year. This marks the lowest export volume for this period since 2021, further emphasizing the negative impact of the export curbs on global supply chains.

China’s decision to impose stricter controls on rare earth exports, including magnets, has created significant challenges for industries worldwide. With reduced shipments and ongoing confusion about the application of the curbs, the global supply of rare earth materials is under pressure. As China moves to streamline its export licensing process, it remains to be seen how quickly the situation will stabilize and whether supply chains can recover in the face of these challenges.