Dollar Slumps to Multi-Year Lows as Fiscal Fears and Fed Pressure Undermine Confidence

Economic

Forex

Summary:

The U.S. dollar continued to weaken sharply, hitting its lowest level against the euro since 2021, as markets reacted to fiscal risks posed by President Trump’s $3.3 trillion spending plan...

Fiscal Uncertainty and Trade Tensions Undermine Dollar Stability

The U.S. dollar traded at its weakest level in years on Tuesday, burdened by rising fiscal anxiety and unresolved global trade tensions. The greenback’s continued decline reflects mounting investor skepticism toward the U.S.’s fiscal and monetary outlook under President Donald Trump’s administration. The proposed $3.3 trillion tax-and-spending bill, currently stalled in the Senate amid internal Republican divisions, has added to the perception of growing credit risk and policy uncertainty in the world's largest economy.

The fiscal debate coincides with looming tariff deadlines, and Trump's persistent criticism of the Federal Reserve has cast further doubt on the central bank’s independence. These combined factors have triggered a broad reassessment of the dollar’s status as a safe-haven asset.

Euro and Yen Strengthen as Investors Flee Dollar Assets

The euro rose to $1.179, its highest level since September 2021, after gaining an unprecedented 13.8% in the first half of the year. The surge reflects both fundamental strength in the eurozone economy and a shift in global capital away from dollar-denominated assets. The Japanese yen also firmed to 143.68 per dollar, having risen 9% since January—its strongest first-half performance since 2016.

While both currencies have appreciated partly due to relative economic resilience, their gains are also clearly linked to a decline in dollar demand, as investors seek alternatives amid fiscal disarray and political unpredictability in the U.S.

Dollar Index Slides Amid Broad-Based Weakness

The dollar index, which measures the greenback against a basket of six major currencies, dropped to 96.688, its lowest level since February 2022. This marks a more than 10% fall in the first half of 2025, making it the worst such performance since the dollar became a free-floating currency in the early 1970s. This shift is not merely correlational—it signals an underlying erosion of confidence in U.S. fiscal discipline and monetary coherence.

Analysts have pointed to weakening demand at Treasury auctions and waning foreign investor appetite for U.S. government debt as further evidence of this trend. Nathan Hamilton of Aberdeen Investments noted that the “bear steepening” of the yield curve, when long-term rates rise faster than short-term ones, illustrates that investors are beginning to reprice the relative credit risk of the U.S.

Pressure on the Fed Fuels Monetary Policy Concerns

Markets are increasingly pricing in a dovish turn from the Federal Reserve. Traders now expect 67 basis points of interest rate cuts by year-end, based on deteriorating economic indicators and relentless political pressure. President Trump has publicly pressured Fed Chair Jerome Powell, even sending him a list of global interest rates to argue that U.S. rates should be lowered to between Japan’s 0.5% and Denmark’s 1.75%.

Trump's open campaign against Powell and the Fed's policy stance is beginning to affect investor perceptions of the institution's credibility. Although Trump lacks the authority to remove Powell over a disagreement, his actions have introduced a new layer of volatility to monetary policy expectations.

Upcoming Economic Data Adds to Market Anxiety

Markets are now watching closely for Thursday’s nonfarm payrolls report, which is expected to show a slowdown in job growth. Economists forecast an increase of 110,000 jobs in June, down from 139,000 in May, with unemployment expected to edge up to 4.3%. A weaker-than-expected report could reinforce the case for rate cuts, compounding pressure on the already weakened dollar.

Investors are also tracking the July 9 tariff deadline set by the Trump administration. While U.S. officials continue negotiations with trade partners, few concrete agreements have been reached. Trump recently expressed dissatisfaction with progress in U.S.-Japan talks, and Treasury Secretary Scott Bessent warned that countries could still face higher tariffs regardless of ongoing discussions. This uncertainty continues to cast a shadow over global trade flows and exchange rate stability.

The dollar’s sharp drop is not merely a reaction to near-term political uncertainty but signals deeper structural concerns over fiscal sustainability, central bank independence, and the credibility of U.S. policymaking. With a fragile labor market outlook, volatile trade negotiations, and escalating internal pressure on the Fed, the U.S. dollar is facing a rare and simultaneous erosion of both its yield advantage and its safe-haven status. Markets are now bracing for further shifts in capital allocation if these uncertainties persist through the second half of 2025.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Kevin Morgan

Economic

Surging U.S. government debt may sap investor appetite for key U.S. assets like long-dated Treasuries and the dollar, bolstering the case for turning to opportunities beyond U.S. borders, BlackRock said on Monday.

President Donald Trump's tariffs spurred market volatility this year and raised doubts over the dollar's status as the world's reserve currency. Fears of de-dollarization remain far-fetched but rising government debt could increase that risk, said fixed income executives at the world's largest asset manager.

"We’ve been highlighting the precarious position of the U.S. government’s indebtedness for some time now, and, if left unchecked, we view debt as the single greatest risk to the 'special status' of the U.S. in financial markets," they said in a third-quarter fixed income outlook note.

Congress is debating a tax and spending bill that is a key element of Trump's economic agenda and that non-partisan analysts say will add up to $5 trillion over the next decade to the U.S. federal government debt pile of more than $36 trillion.

Higher government debt could reduce the correlation between the direction of long-dated Treasury yields and monetary policy in the United States, BlackRock said, with yields rising despite the Federal Reserve cutting interest rates. Increased supply of U.S. government debt is likely to be met with lower demand from the Fed as well as foreign central banks.

That argues for diversification outside of the U.S. government bond market and for more exposure to short-dated U.S. Treasuries that could benefit from interest rate cuts, the asset manager said.

"Despite proposed spending cuts, deficits are still climbing - and more of that spending is now going toward interest payments," said BlackRock's investment managers.

"With foreign investors stepping back and the government issuing more than half a trillion dollars of debt weekly, the risk of private markets being unable to absorb this debt and consequently pushing government borrowing costs higher, is tangible," they added.

Source: Theedgemarkets

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. EU will accept Trump's 10% across-the-board tariffs, sources say.

2. Trump signs executive order terminating sanctions on Syria.

3. U.S. Treasury Chief signals Fed leadership change on horizon.

4. Goldman Sachs moves up Fed rate cut forecast to September.

[News Details]

EU will accept Trump's 10% across-the-board tariffs, sources say

The European Union is willing to accept a trade agreement with the United States featuring a 10% across-the-board tariff on many EU exports, but seeks U.S. commitment to lower tariffs for critical sectors such as pharmaceuticals, alcohol, semiconductors, and commercial aircraft, according to sources familiar with the matter. The EU is also pushing for quotas and exemptions from the U.S. to effectively mitigate its 25% tariffs on automobiles and auto parts, as well as 50% tariffs on steel and aluminum.

Sources indicate that Maroš Šefčovič, the EU's trade chief, will lead a delegation to Washington this week to advance negotiations. The European Commission further aims to ensure that both existing U.S. sectoral tariffs (e.g., on autos and metals) and planned future tariffs are addressed.

Trump signs executive order terminating sanctions on Syria

The White House announced on June 30th that President Trump signed an executive order ending sanctions against Syria.

The statement noted that the order eases export controls on certain goods and lifts restrictions on foreign assistance to Syria. A senior U.S. Treasury official stated this would end Syria's isolation from the international financial system.

In 1979, the U.S. government designated Syria as a "state sponsor of terrorism," imposing arms embargoes, economic sanctions, and other measures. Following the 2011 Syrian crisis, the U.S. escalated sanctions. In 2019, during his first term, Trump signed the so-called Caesar Syria Civilian Protection Act, imposing financial and other sanctions on Syrian government officials, as well as individuals and entities funding the Syrian government.

U.S. Treasury Chief signals Fed leadership change on horizon

U.S. Treasury Secretary Bessent expressed confidence during a Monday interview with Bloomberg Television that Trump's comprehensive tax legislation would advance, anticipating the president would sign the bill before July 4th.

Bessent further stated that tariffs had not triggered inflation, but the Federal Reserve appeared "idle." Trump is considering appointing Powell's successor early next year and hinted that current Fed governors are candidates. This follows Trump's renewed criticism of the central bank, asserting that "Mr. Too Late" Jerome Powell and the entire Federal Reserve Board should feel ashamed for not cutting rates.

Goldman Sachs moves up Fed rate cut forecast to September

Goldman Sachs's latest forecast indicates the Fed will cut rates by 25 basis points each at its September, October, and December meetings while lowering its terminal rate projection from the previous 3.5%-3.75% to 3%-3.25%. The report notes tariff-driven inflation effects were "slightly weaker than expected," and factors such as increased anti-deflationary force, substantial labor market weakness, or panic induced by volatile monthly data could prompt an earlier September cut. Should preventative cutting motives emerge, consecutive meeting cuts, as in 2019, would be the most natural approach.

However, Goldman Sachs analysts clarified that unless this week's jobs data falls far short of expectations, no rate cut is penciled in for the July meeting.

[Today's Focus]

UTC+8 14:30 Switzerland May Real Retail Sales Year-on-Year

UTC+8 15:55 Germany June Seasonally Adjusted Unemployment Rate

UTC+8 17:00 Eurozone June CPI MoM Preliminary Estimate

UTC+8 21:30 ECB Forum – Panel Discussion with Key Global Central Bank Governors

UTC+8 22:00 US June ISM Manufacturing PMI

UTC+8 22:00 US May JOLTs Job Openings (in 10K)

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Markets Cautious as U.S. Fiscal Policy Hangs in the Balance

Asian stock markets advanced slightly on Tuesday, driven by cautious optimism as traders tracked developments surrounding the United States' expansive fiscal agenda. The debate over President Donald Trump’s proposed tax-cut and spending package—dubbed the "One Big Beautiful Bill"—continued into the Asian trading session, delaying a vote initially expected before July 4. The bill, estimated to expand U.S. debt by $3.3 trillion, has become a focal point for global market sentiment.

Investors remained alert to both the content of the legislation and the political friction it has sparked. The prolonged debate, involving a stream of proposed amendments from both Republican and Democratic lawmakers, has added uncertainty to a market environment already sensitive to interest rate expectations and global trade dynamics.

Dollar Weakens as Senate Gridlock and Fed Outlook Intersect

The U.S. dollar drifted near multi-year lows as investors priced in delays and political complexity surrounding fiscal policy. The greenback dropped 0.3% to 143.62 yen, while slipping 0.1% against the euro to $1.1794, touching its weakest level since September 2021.

The dollar’s decline reflects both political uncertainty and expectations that upcoming U.S. payroll data could influence the Federal Reserve’s rate trajectory. While the currency move is correlated with the ongoing legislative debate, the potential causal driver lies in how these fiscal outcomes may alter economic conditions that shape central bank decision-making.

Asian Equities Find Some Support, Led by South Korea

Despite the overhang of U.S. political developments, Asian equities rose modestly, with MSCI’s broadest index of Asia-Pacific shares outside Japan gaining 0.5%. South Korea’s Kospi index led regional gains, climbing 1.8%, suggesting investor confidence in selected local fundamentals or sector-specific momentum.

Japan’s Nikkei index, however, diverged, falling as much as 1.1% as the yen’s appreciation weighed on export-heavy sectors. The inverse relationship between yen strength and Japanese equities remains a consistent causal pattern—stronger yen diminishes competitiveness of overseas sales, thereby pressuring stock valuations.

Commodities Diverge: Gold Advances, Oil Slides

Commodities reflected the market’s mixed risk posture. Spot gold prices increased 0.5% to $3,319.55 per ounce, supported by both dollar weakness and safe-haven demand amid fiscal policy and monetary uncertainty. The movement in gold demonstrates a clear causal relationship: weaker dollar and rising geopolitical or economic ambiguity tend to lift gold prices as investors seek stability.

Conversely, U.S. crude oil declined for the second consecutive session, falling 0.4% to $64.86 per barrel. The decline was linked to expectations that OPEC+ may raise production in August, a factor that would increase supply and potentially curb price growth. Here, the price reaction is a direct causal response to anticipated changes in production levels.

European Futures Signal Cautious Optimism

European markets appeared poised for a subdued open, with Euro Stoxx 50 futures up 0.1% and German DAX futures rising 0.2%. These small gains mirror the restrained sentiment in Asia, indicating that global markets are awaiting clarity on U.S. fiscal decisions before committing to stronger directional bets.

While Asian equities found limited upward traction, broader market sentiment remains cautious due to the unresolved U.S. fiscal debate. The weakening dollar, firming gold, and falling oil reflect diverging investor expectations across asset classes, highlighting uncertainty over inflation, monetary policy, and global demand. Until the contours of Trump’s $3.3 trillion bill become clear, markets are likely to stay reactive and fragmented, responding not only to U.S. political headlines but also to incoming labor and trade data later in the week.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Devin

Commodity

Shell Plc has started exports from Canada’s first liquefied natural gas project, helping to meet rising Asian demand and extending its position in the global LNG market.

The first cargo from the plant in British Columbia was loaded on the vessel Gaslog Glasgow. Operator LNG Canada Development Inc. said on Monday that the ship is destined for “global markets.” Shell owns 40% of the project.

LNG Canada is ramping up at a time when demand for gas is on the rise and buyers are focused on trading routes that avoid geopolitical flashpoints — particularly around the Persian Gulf. The plant at Kitimat on Canada’s west coast is relatively close to customers in East Asia and comes on stream ahead of new export plants in the US and Qatar, which won’t add substantial supplies to the market until next year at the earliest.

“We very much see it as a very strategic location on the Pacific coast,” Cederic Cremers, Shell’s president of integrated gas, said in an interview. It “connects very cost-competitive upstream gas from British Columbia to growing Asian demand,” he said.

A second production unit, known as a train, will start up later this year, and the 14 million-ton-a-year facility will reach full capacity in 2026, Cremers said. Once both trains are online, Canada would rank eighth in global LNG exports, behind Nigeria, data compiled by Bloomberg show.

A further expansion is under discussion between Shell and its partners — Petroliam Nasional Bhd., PetroChina Co., Mitsubishi Corp. and Korea Gas Corp. — with a final investment decision likely next year, Cremers said.

Shell expects global LNG demand to grow 60% by 2040, led by Asia. The company is a shareholder in plants around the world, including in Qatar and Australia, has a massive trading operation and operates a shipping network that manages about 10% of the global LNG fleet.

The firm’s LNG sales reached 66 million tons last year and are set to rise 4% to 5% annually until the end of the decade, Cremers said. Between now and then, Shell expects to add 12 million tons a year of LNG capacity.

Source: Bloomberg Europe

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Manufacturing Returns to Expansion but Recovery Remains Fragile

China’s private manufacturing activity edged back into expansion in June 2025, reflecting a modest rebound in domestic demand. The Caixin/S&P Global Manufacturing Purchasing Managers’ Index (PMI) rose to 50.4, a significant jump from May’s 48.3, and above the neutral 50-point mark that separates growth from contraction. This figure also exceeded market expectations and marked the sector’s first expansion in several months.

However, the rebound was uneven. While the increase in new domestic orders helped boost production, international demand continued to falter. The Caixin findings contrasted with the official manufacturing PMI released earlier, which reported contraction for the third consecutive month, highlighting a divergence between large state-owned and smaller private-sector firms.

Rising Domestic Orders Spur Output

June’s growth was primarily driven by a recovery in domestic demand. New orders rose for the first time since April, fueled by improving trade conditions and targeted promotional efforts by firms. This uptick translated into the strongest output levels since November 2024. The causal link between increased new orders and output expansion is clear—businesses responded directly to higher sales volumes by ramping up production.

The rise in demand also led to an accumulation of backlogged orders for the first time in three months, due to a simultaneous drop in workforce capacity. While this typically indicates healthy utilization of resources, the root cause—employment reductions—reveals deeper structural weaknesses.

Labor Market Pressure Signals Caution

Despite stronger activity, employment in China’s manufacturing sector declined again in June. Respondents attributed this to both voluntary resignations and layoffs, with many smaller exporters under pressure to cut wages or jobs to remain competitive. This signals a more troubling trend: while output is improving in the short term, job creation is not following suit, implying a decoupling between production growth and labor absorption—a worrying sign for long-term recovery sustainability.

This development suggests a correlation rather than causation between output gains and employment dynamics. The short-term production rise has not translated into job stability, hinting at companies' reluctance to commit to labor expansion amid fragile margins.

Deflationary Pressures Despite Rising Logistics Costs

Output prices fell at the sharpest rate since January, reflecting weak pricing power among manufacturers. This decline was supported by falling input costs, but export-related charges continued to rise due to more expensive logistics and shipping. The imbalance between falling domestic prices and higher export logistics costs underlines margin compression in the sector, especially for export-dependent businesses.

This divergence has resulted in uneven profitability. Some firms reported having to sell at a loss, a clear indicator of external challenges still facing the sector. In this case, causality is apparent: rising logistics expenses are directly pushing up export charges, while domestic price weakness stems from insufficient demand and strong competition.

Muted Business Confidence and Policy Outlook

Although the June PMI offered a glimmer of recovery, overall business confidence slipped from May and remained below the historical average. Companies remain cautious, with ongoing global uncertainties and unresolved domestic demand imbalances clouding the outlook.

Goldman Sachs analysts noted that the upcoming July Politburo meeting is unlikely to introduce major new stimulus measures, as Beijing appears moderately content with current macroeconomic performance. This suggests that significant government intervention is not imminent, even as key indicators such as employment and external demand remain under pressure.

Positive Signs in Trade Talks, But Limited Immediate Impact

On the trade front, recent developments offered limited relief. The United States and China reached an agreement over rare earth mineral shipments, continuing diplomatic progress initiated in May. While this may help ease some sector-specific bottlenecks, it does not directly impact broader manufacturing sentiment or export orders in the near term.

China’s return to manufacturing growth in June points to early signs of stabilization in the industrial sector. However, the improvement is largely driven by short-term domestic factors, while underlying challenges—particularly weak employment, soft export demand, and limited pricing power—persist. Without stronger policy support or a rebound in global demand, this recovery remains vulnerable to setbacks, and long-term momentum will depend on resolving deeper structural issues.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Moderate Optimism Emerges Among Japanese Manufacturers

Japan’s manufacturing sector has shown signs of cautious improvement despite ongoing uncertainty over U.S. trade policy. According to the Bank of Japan’s latest Tankan survey released on Tuesday, the sentiment index for large manufacturers edged up to +13 in June from +12 in March. This mild increase follows the first dip in a year recorded last quarter. The Tankan index represents the difference between companies expecting favorable business conditions and those anticipating deterioration, serving as a bellwether for corporate confidence in Japan.

Persistent concerns remain about U.S. tariffs imposed by President Donald Trump, particularly in sectors reliant on exports such as automotive and electronics. The Trump administration has introduced a 25% tariff on automobile imports and a 50% duty on steel and aluminum, measures that directly affect Japanese exporters like Toyota Motor Corporation. Furthermore, Japanese carmakers’ operations in Mexico face additional uncertainty due to a separate tariff framework targeting that country.

These policy shifts threaten to disrupt Japan’s tightly interwoven supply chains. However, the relationship between tariffs and business sentiment in Japan appears more correlational than directly causal, as Japanese automakers have sustained relatively stable global sales in recent months despite the pressure.

Yen Depreciation Supports Export Earnings

Currency movements have played a buffering role. The yen has depreciated significantly, with the exchange rate reaching approximately 140 yen per U.S. dollar—well above the 110 yen level seen five years ago. This weaker yen increases the value of overseas earnings for Japanese companies when repatriated, thereby offsetting part of the cost burden imposed by tariffs and rising input prices. The relationship here is causal: the yen’s depreciation directly boosts nominal export revenue, especially in sectors like automotive and high-tech manufacturing.

The Bank of Japan has kept its benchmark interest rate at 0.5% following a hike from 0.1% earlier this year, signaling a cautious approach to monetary tightening. Although further rate increases are expected, many analysts predict the central bank will hold off until 2026, particularly given the complex trade environment and mixed business sentiment. The Tankan data will play a key role in informing the policy board’s decisions at their meeting later this month.

Non-Manufacturing Sector Sentiment Slightly Declines

While manufacturing optimism showed marginal improvement, large non-manufacturing firms reported a slight dip in sentiment, with the index falling from +35 to +34. However, this was still better than analysts’ expectations, which had forecast a sharper decline. This indicates that domestic consumption and service-related industries remain relatively stable, though slightly more cautious.

Labor market conditions continue to support the broader economy. Japan’s unemployment rate stood at 2.5% in May, unchanged from the previous month. This sustained low unemployment reflects underlying economic resilience despite global headwinds.

Bilateral Frictions and Political Commentary

Political signals from Washington have added uncertainty. President Trump recently criticized Japan for not purchasing enough U.S. rice despite experiencing a domestic shortage, suggesting a letter to Japanese officials was forthcoming. Meanwhile, U.S. National Economic Council Director Kevin Hassett hinted at finalized trade frameworks with several countries, signaling that further negotiations could shape the tariff landscape in the near future.

While concerns over American protectionism continue to loom, Japan’s large manufacturers remain modestly optimistic, buoyed by favorable currency conditions and resilient global demand. However, continued diplomatic dialogue and careful monetary policy coordination will be critical in preserving this fragile balance. The slight improvement in business sentiment underscores Japan's adaptability but also highlights its vulnerability to external policy shifts.