Challenge To Dollar Supremacy A Long Way Off, Central Bankers Say

Central Bank

Summary:

FILE PHOTO: Illustration shows U.S. Dollar banknotes · Reuters By Francesco Canepa and Balazs Koranyi SINTRA, Portugal (Reuters)

There is no prospect of a major challenge to the dollar's status as the world's reserve currency of choice any time soon, central bankers gathered for an annual conference in the Portuguese resort of Sintra said on Tuesday.

U.S. President Donald Trump's unpredictable economic, trade and security policies have spurred questions over whether the U.S. currency, which accounts for 58% of the world's reserves, can remain at the centre of the global monetary system.

European Central Bank President Christine Lagarde, who has argued the euro could over time become an alternative to the dollar if Europe's currency zone enacted necessary reforms, said 2025 could in future be viewed as "pivotal" in this respect.

"(But) for a major change to occur it will take a lot of time and a lot of effort," she told a panel with her U.S., British, Japanese and Korean counterparts.

She noted that "investors are looking at options" in a climate characterised by uncertainty and unpredictability and that there was evidence that the euro was benefiting from that.

"It's not going to happen just like that overnight. It never did historically," she said. "But there is clearly something that has been broken. Whether it is fixable, or whether it is going to continue to be broken - I think the jury's out."

Bank of Japan Governor Kazuo Ueda also noted that any significant change would depend on structural reforms.

"It's to a certain extent up to what areas like Europe or China will do in terms of improving the efficiency or convenience of their currencies," he said, citing as an example the efforts at capital market integration in the euro zone.

Bank of England Governor Andrew Bailey said any change to the dollar's status was a long way off.

"I don't see ... a sort of a major shift at the moment," he said, arguing that any reserve currency had to offer a supply of safe assets into the market that can be used for purposes of collateral and security.

Bank of Korea Governor Rhee Chang-yong said the prospect of a long-term shift of the dollar sentiment was a subject of discussion for some even as they retained their dollar holdings.

"It looks like people are talking about it. But at this moment they keep the dollar share while increasing their hedging ratio," he told the panel.

Lagarde told a recent audience in Berlin that there was an opening for a "global euro moment", if it earned it.

Source: Yahoo Finance

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Adam

Economic

Federal Reserve Chair Jerome Powell said Tuesday that the U.S. central bank would have eased monetary policy by now if not for President Donald Trump’s tariff plan.

When asked during a panel if the Fed would have lowered rates again this year had Trump not announced his controversial plan to impose higher levies on imported goods earlier this year, Powell said, “I think that’s right.”

“In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said at European Central Bank forum in Sintra, Portugal.

Powell’s admission comes as the Fed has entered a holding pattern on interest rates despite mounting pressure from the White House.

The Fed last month held the key borrowing rate steady once again, keeping fed funds at the same range between 4.25% and 4.5% where it’s been since December.

The central bank’s policy-setting Federal Open Market Committee indicated via its so-called dot plot of members’ projections that there could be two cuts by the end of 2025. However, Powell also said at a press conference last month that the Fed was “well positioned” to remain in a wait-and-see mode.

On Tuesday, Powell was asked if July would be too soon for markets to expect a rate cut. He answered that that he “really can’t say” and that “it’s going to depend on the data.” Fed funds futures traders are pricing in a more than 76% likelihood that the central bank once again holds rates steady at the July policy gathering, according to the CME FedWatch tool.

“We are going meeting by meeting,” Powell said during Tuesday’s panel. “I wouldn’t take any meeting off the table or put it directly on the table. It’s going to depend on how the data evolve.”

Powell’s future at the Fed

The Fed’s unrelenting position to keep rates where they are for now has caught the ire of Trump and his administration, who have publicly admonished Powell for the central bank’s failure to lower borrowing costs. Trump last week called Powell “terrible” and said he was a “very average mentally person.”

When asked on Tuesday if he would stay on as Fed governor after his term as chair ends next year, Powell responded, “I have nothing for you on that today.” Powell’s term as a Fed chair ends in 2026, while his position as governor is set to run into 2028.

Global trade policy and Trump’s attacks on Powell took center stage at Tuesday’s event, where the U.S. Fed chief was flanked on the panel by other leaders of central banks from around the globe. International central bank leaders fielded questions ranging from whether they’d act as Powell if they were in his shoes, to whether nations are breaking away from the U.S.

Trump’s on again, off again tariff policy has put global markets and monetary policy makers on edge. The president first unveiled a plan for steep levies on imported goods in early April, before delaying many of the steepest tariffs shortly after when U.S. markets tumbled.

The U.S. stock market has more than regained losses recorded in the wake of Trump’s initial announcement, with the S&P 500 hitting all-time highs in recent days for the first time since February. But investors and monetary policymakers still report feeling uncertain about the future of global trade and its impact on global economic growth, profits and stock markets.

“All I want — and all anybody at the Fed wants — is to deliver an economy that has price stability, maximum employment, financial stability,” Powell said. “What keeps me awake at night is: How do we get that done? I want to hand over to my successor an economy in good shape.”

Source: cnbc

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Adam

Stocks

Shares of Tesla were under pressure on Tuesday after President Donald Trump said in a late-night social media post that the federal government should look into cutting subsidies for Elon Musk’s companies.

“Elon may get more subsidy than any human being in history, by far, and without subsidies, Elon would probably have to close up shop and head back home to South Africa. No more Rocket launches, Satellites, or Electric Car Production, and our Country would save a FORTUNE. Perhaps we should have DOGE take a good, hard, look at this? BIG MONEY TO BE SAVED!!!” the Truth Social post said.

“DOGE” refers to the so-called Department of Government Efficiency, which Musk led early in Trump’s administration before leaving his government role in late May Tesla’s stock was down nearly 5% on Tuesday. Some of Musk’s other ventures, including SpaceX and Starlink, are heavily reliant on government policy decisions.

Trump appeared to reiterate his idea to cut the subsidies when speaking to reporters on Tuesday morning.

“He’s upset that he’s losing his EV mandate ... but he can lose a lot more than that, I can tell you. Elon can lose a lot more than that,” Trump said.

Trump expanded on his comments again later Tuesday morning.

“I think what’s going to happen is DOGE is going to look at Musk. And if DOGE looks at Musk, we’re going to save a fortune. ... I don’t think he should be playing that game with me,” Trump told reporters.

Musk, who campaigned with Trump in 2024, has been publicly critical of the tax and spending bill making its way through Congress. The legislation appears set to cut government support for green energy and electric cars while raising the projected federal deficit, relative to current law.

On social media site X, Musk responded to a screenshot of Trump’s post with “I am literally saying CUT IT ALL. Now.”

Musk’s criticism of the administration’s spending plans appeared to be one reason for a public feud in early June, which led to a sell-off in Tesla’s stock. Then, tensions appeared to cool, and Tesla shares had rebounded more than 11% since June 5.

However, the Tesla CEO has started his criticism of the tax bill again, and also taken aim at the Republican Party. On Monday, Musk said on X that it was “time for a new political party that actually cares about the people.”

source :cnbc

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Devin

Economic

The Republican-controlled U.S. Senate passed President Donald Trump's tax and spending bill on Tuesday, signing off on a massive package that would enshrine many of his top priorities into law while adding $3.3 trillion to the national debt.

The bill now heads back to the House of Representatives for final approval. Trump has pushed lawmakers to get it to his desk to sign into law by the July 4 Independence Day holiday.

Trump's Republicans have had to navigate a narrow path while shepherding the 940-page bill through a Congress that they control by the slimmest of margins. With Democrats lined up in opposition, Republicans have had only three votes to spare in both the House and Senate as they wrangled over specific tax breaks and healthcare policies that could reshape entire industries and leave millions of people uninsured.

Yet they have managed to stay largely unified so far. Only three of the Senate's 53 Republicans joined with Democrats to vote against the package, which passed 51-50 after Vice President JD Vance cast the tiebreaking vote.

The vote in the House, where Republicans hold a 220-212 majority, is likely to be close as well.

'NOT FISCAL RESPONSIBILITY'

An initial version passed with only two votes to spare in May, and several Republicans in that chamber have said they do not support the version that has emerged from the Senate, which the nonpartisan Congressional Budget Office estimates will add $800 billion more to the national debt than the House version.

The House Freedom Caucus, a group of hardline conservatives who repeatedly threatened to withhold their support for the tax bill, is pushing for more spending cuts than what the Senate offered.

“The Senate’s version adds $651 billion to the deficit — and that’s before interest costs, which nearly double the total,” the caucus posted online on Monday, “That’s not fiscal responsibility. It’s not what we agreed to.”

A group of more moderate House Republicans, especially those who represent lower-income areas, object to the steeper Medicaid cuts in the Senate’s plan.

“I will not support a final bill that eliminates vital funding streams our hospitals rely on,” Representative David Valadao, a California Republican, said during the weekend debate.

Still, House Republicans are likely to face enormous pressure to fall in line from Trump in the days to come.

TAX BREAKS, IMMIGRATION CRACKDOWN, TIGHTER BENEFITS

The "One Big Beautiful Bill Act" would make permanent Trump's 2017 business and personal income tax cuts, which are due to expire at the end of this year, and dole out new tax breaks for tipped income, overtime and seniors that he promised during the 2024 election. It provides tens of billions of dollars for Trump's immigration crackdown and would repeal many of Democratic President Joe Biden's green-energy incentives.

The bill would also tighten eligibility for food and health safety net programs, which nonpartisan analysts say would effectively reduce income for poorer Americans who would have to pay for more of those costs.

The CBO estimates the latest version of the bill would add $3.3 trillion to the $36.2 trillion debt pile. That increased debt effectively serves as a wealth transfer from younger to older Americans, nonpartisan analysts say, as it will slow economic growth, raise borrowing costs and crowd out other government spending in the decades to come.

The bill also would raise the nation's borrowing limit by $5 trillion, postponing the prospect of a debt default this summer that would roil global markets.

Republicans rejected the cost estimate generated by the CBO's longstanding methodology. Nonetheless, foreign bond investors see incentives to diversify out of U.S. Treasuries as deficits deepen.

Republicans say the bill will help families and small businesses and put benefit programs like Medicaid on a more sustainable path, and they have broadly agreed on its main contours. But they have struggled to agree on the Medicaid funding mechanism and a tax break for state and local tax payments that is a top priority for a handful of House Republicans from high-tax states including New York, New Jersey and California. Others worry that a crackdown on a funding mechanism for the Medicaid health program could lead to service cutbacks in rural areas.

Some on the party's right flank, meanwhile, have pushed for deeper Medicare cuts to lessen its budgetary impact.

Trump has singled out those Republican dissenters on his Truth Social network and excluded them from White House events, and few have been willing to defy him since he returned to office in January. Senator Thom Tillis of North Carolina, one of the three Republicans who voted against the bill, said on Sunday he would not run for re-election next year.

Source: Reuters

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Adam

Economic

Central Bank

Bank of England Governor Andrew Bailey told CNBC Tuesday that “the path of interest rates will continue to be gradually downwards,” as the central bank juggles taming inflation and stoking elusive economic growth.

“I haven’t changed my mind on that,” he told CNBC’s Annette Weisbach in Sintra, Portugal, where the European Central Bank is holding a forum. “But in terms of where are we going to go in the next meeting? Well, we’ll see.”

Economists expect policymakers will cut rates by 25 basis points at their next gathering in August, which would take the central bank’s base rate from 4.25% to 4%.

But BOE’s Bailey told CNBC that policymakers needed to gauge whether persistent inflationary pressures, such as averages wage outpacing inflation and higher energy prices, would continue to soften.

“For me, the key question is, is that softening that we’re beginning to see going to come through and create the context where inflation will come back down to target?” he cautioned.

The BOE has a 2% inflation target, but price rises have stubbornly exceeded that level, landing at 3.4% in May — well above the neighboring euro zone’s latest inflation print of 2% in June. Growth meanwhile remains elusive, with the U.K. economy shrinking sharply in April as global trade tariffs and new domestic tax rises kicked in.

U.K. Finance Minister Rachel Reeves — who last fall introduced tax increases on businesses to largely fund a mammoth public spending program — said the latest growth data was “clearly disappointing.”

She also responded to the May inflation reading by insisting that the Treasury had taken “the necessary choices to stabilise the public finances and get inflation under control,” referencing her “fiscal rules” that dictate that day-to-day government spending won’t be funded by borrowing.

In the time since those “non-negotiable” rules were set last October, however, the U.K.’s economic and fiscal outlook has become more challenging, with higher debt interest payments and weaker-than-expected tax receipts converging with lower economic growth forecasts. Back in March, the independent Office for Budget Responsibility said that it expects the U.K. to record 1% growth this year and 1.9% in 2026.

Chancellor Reeves has acknowledged that there is “more to do” as the government desperately seeks to boost growth in the U.K. economy.

In order to achieve that while sticking to her fiscal rules, Reeves has essentially been left with three options: cut public spending, increase borrowing or raise taxes further.

Economists say the latter choice is the government’s only real option, as it has already committed to higher public spending and a more sustainable borrowing framework.

Central bank policymakers tend to steer clear from commenting on governments’ fiscal policies to avoid accusations of interference or bias. Bailey nevertheless on Tuesday told CNBC that, while it was important that Reeves had “set out a very clear fiscal framework,” there should be a “suitable amount of flexibility in that.”

“The U.K. has got a fiscal framework that the chancellor and I discuss it often. I know the chancellor is very committed to having a robust fiscal policy in place, and that is important as a backdrop to macroeconomic stability,” he said.

Source: cnbc

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Daniel Carter

Economic

Political

The U.S. and India are nearing a deal to lower tariffs on American imports to the South Asian country and to help India avoid levies imposed by the Trump administration rising sharply next week, Treasury Secretary Scott Bessent said on Tuesday.

"We are very close with India," Bessent told Fox News in response to a question about progress on trade negotiations.

Indian officials extended a visit to Washington last week through Monday to try to reach agreement on a trade deal with PresidentDonald Trump's administration and address lingering concerns on both sides, Indian government sources told Reuters.

India is one of more than a dozen countries actively negotiating with the Trump administration to try to avoid a steep spike in tariff rates on July 9, when a 90-day tariff pause ends. India could see its new "reciprocal" tariff rate rise to 27% from the current 10%.

The U.S.-India talks have hit roadblocks over disagreements on import duties for auto components, steel, and farm goods, ahead of Trump's deadline to impose reciprocal tariffs.

"We are in the middle — hopefully more than the middle — of a very intricate trade negotiation," Indian Foreign Minister Subrahmanyam Jaishankar told an event in New York on Monday.

"Obviously, my hope would be that we bring it to a successful conclusion. I cannot guarantee it, because there's another party to that discussion," said Jaishankar, who is in the U.S.for a meeting of the China-focused Quad grouping.

He added that there "will have to be give and take" and the two sides will have to find middle ground.

Bessent told Fox News that different countries have different agendas for trade deals, including Japan, which Trump complained about on Monday. But Bessent added that career trade negotiators are impressed with the offers that countries are making to the U.S.

"People who have been at Treasury, at Commerce, at USTR for 20 years, are saying that these are deals that they have never seen before," Bessent said.

So far, only Britain has negotiated a limited trade deal with the Trump administration, accepting a 10% U.S. tariff on many goods, including autos, in exchange for special access for aircraft engines and British beef.

Source: Reuters

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Adam

Stocks

Three themes tell the story of the year so far, embodied by three stocks that encapsulate the highs and the lows of the first half of 2025.

Boeing (BA) has become the government's favorite trade talk tool, representing resilience and preferential treatment from D.C.

Walmart (WMT) captures the other side of the tariff challenge, warning of price increases and omitting some guidance as the outlook remains uncertain.

And thirdly, the volatility around Tesla (TSLA), and by extension its CEO and former government employee, Elon Musk, reflects the chaos of the last several months and the shifting policies and alliances that have driven the market.

Boeing has emerged as a clear winner in the first six months of this year's trading after spending most of its recent memory marred by a series of high-profile blunders.

But the stock is riding the momentum of several trade deals, becoming an instrument of US statecraft. The Trump administration has wielded contracts with the aerospace manufacturer like a bargaining chip, reinforcing the company's importance as a marquee ticker and a symbol of American might. Shares are up 20% for the year, and have even recouped the losses following the Air India crash of a Boeing 787 on June 12.

While not featured in trade talk deals the way Boeing has been, another name stands out for rising on shifting political winds, expanded government work, and AI excitement: Palantir (PLTR).

The best performer in the S&P 500 last year, it's a stock that has long been at the top of trending charts. Palantir shares are up more than 80% so far this year as the administration seeks to use the company's security and defense technology for data analysis.

But for every Palantir and Boeing there are dozens more tickers (and many more private companies) that are being squeezed by tariffs and the prospects of more to come.

Walmart, the nation's largest retailer, reported mixed numbers in its first quarter report, noting that tariffs had already led to price increases in April and May. While executives said they expect net sales for the second quarter to increase as much as 4.5%, they did not provide guidance for adjusted earnings or operating income for the second quarter.

The absence of full guidance underscored a broader challenge for corporations across the country: coping with the consequences of tariff policy without knowing their full scope and their ultimate impact. Still, Walmart has gained about 7% this year, slightly ahead of the benchmark S&P's 5% increase.

Getting a handle on 2025's unpredictability wouldn't be possible without also reflecting on the losses. And that's where Tesla comes in. The company's mercurial stock chart highlights the exuberance that defined the start of the year, only to be followed by tariff anxiety, the tug-of-war between bulls and bears, and the falling out between Musk and Trump.

The push in Washington to advance the administration's signature legislation, with key implications for the clean energy industry, once again brought their disagreements center stage. Musk issued a series of weekend posts calling the bill "utterly insane and destructive [with] handouts to industries of the past while severely damaging industries of the future."

Earlier this month, their public feuding led to the loss of $150 billion of Tesla’s value. Meanwhile, Tesla's ambitions to build a nationwide fleet of robotaxis were met with renewed enthusiasm after a launch event last week.

Perhaps investors cheering a fairly mediocre launch of a handful of scofflaw robotaxis is the best encapsulation of the past six months, illustrating the market's singular ability to play down a regrettable present and look forward.