Treasuries Rally, Dollar Slumps as Trump Eyes Powell Successor

Bond

Summary:

Treasuries rallied and the dollar slumped after reports that Trump may name a successor to Fed Chair Powell before his term ends. Markets expect a dovish shift, increasing bets on rate cuts.

The dollar fell and US Treasuries rallied after a report that President Donald Trump is considering naming Federal Reserve Chair Jerome Powell’s successor well before the incumbent’s term is scheduled to end next May.

The Wall Street Journal said Trump may reveal his pick to run the Fed by September or October. The report follows weeks of lobbying by the president for Powell to lower borrowing costs.

Investors and analysts reckon Powell’s replacement will most likely share the president’s dovish bias, prompting speculation interest rates could eventually fall faster and deeper than markets are currently pricing. An early selection could also confuse markets by forcing them to monitor the monetary policy commentaries of Powell and his replacement.

“This increases the risk that Powell will become a ‘lame duck’ in his final months as Fed chair, and with it the risk of earlier interest rate cuts,” said Michael Pfister, an FX analyst at Commerzbank AG.

Treasuries Rally, Dollar Slumps as Trump Eyes Powell Successor_1

Potential contenders to succeed Powell include former Fed Governor Kevin Warsh, current Fed Governor Christopher Waller, National Economic Council Director Kevin Hassett, former World Bank President David Malpass and US Treasury Secretary Scott Bessent, Bloomberg News has previously reported.

Traders have been adding to bets on more US interest-rate cuts in the past days, as Fed officials including Waller and Michelle Bowman, two Trump nominees, appeared to support a move as early as July. The chance of a quarter-point cut in the next meeting rose from zero to 20% and the amount of easing expected by the end of the year jumped from 50 to 62 basis points in a week.

Last week, US rates traders amassed a record futures bet that whomever Trump appoints will lead the central bank to cut interest rates almost immediately. Two-year yields — the most sensitive to changes in monetary policy — fell almost 20 basis points over the past week to trade at 3.75% on Thursday, a seven-week low.

Wagers on lower interest rates are also weighing on the dollar, which weakened against all of its Group-of-10 peers. The Bloomberg’s Dollar Spot Index slumped 0.6% to the weakest level in over three years. Commerzbank’s Pfister forecasts the euro could climb to $1.18 in the coming days if policymakers continue to shift to favor earlier rate cuts.

“Powell continues to attract the heat of the Trump administration,” said Franceso Pesole, a currency strategist at ING. Now that other Fed officials “are openly disagreeing with his cautious stance, markets may well be quick to respond with a dovish re-rating of expectations to soft US data.”

Investors will get further evidence on the health of the US economy on Thursday, with jobless claims, durable goods orders, home sales and final first-quarter growth figures. Fed officials including Austan Goolsbee, Tom Barkin, Mary Daly, Beth Hammack and Michael Barr, are also set to speak.

Powell reiterated his message that officials need not rush to lower rates during his testimony before the Senate Banking Committee this week. He said recent economic data is backward looking and many economists expect “a meaningful increase in inflation” over the course of this year due to tariffs.

“Trump’s actual behavior in terms of appointments to the Fed has been reasonably orthodox,” Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, said in comments prior to the WSJ report. “He of course appointed Powell himself. So one needs to be a little careful about taking all of the rhetoric at face value.”

What Bloomberg Strategists Say...

“The suggestion that Washington is seeking to assert more control over monetary policy could threaten the perceived independence of the US central bank. That won’t do much to improve the appeal of US assets. We are also approaching a seasonally weak period for the dollar. Since 2005, July has tended to be the weakest month for the Bloomberg Dollar Spot Index with an average decline of 0.6%.”

Conor Cooper, Macro Squawk. Click here for the full piece.

Still, traders in the currency options market have been ramping up bets that the dollar’s slide has room to run. One-month risk reversals — a key gauge of sentiment — swung sharply in favor of further downside this week. It was the ninth-largest bearish repricing in greenback options on record over a three-day window.

“Naming a ‘shadow’ Fed Chair is dollar-negative as it risks undermining the Fed’s credibility,” said Elias Haddad, a strategist at Brown Brothers Harriman & Co. “Conflicting signals between the official Chair and a perceived ‘shadow’ figure will increase market confusion, lead to mixed policy expectations, and erode the Fed’s image as a non-partisan institution.”

source :Bloomberg

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Blue River

Technical Analysis

USDCHF technicals

The USDCHF is extending its declines for 2025, with the price now breaking to fresh 2025 lows below the key 0.8032 low from April. The move lower marks a significant technical development as it takes the price to the lowest level since 2011.

The USD is lower today as the market reacts to the news that the Pres. Trump will announce a successor to Fed's Powell over the next few months and the independence of the Fed would be compromised.

Going back in time on the weekly chart above, the bearish trend was set in motion after the January 2025 high stalled near multiple key technical zones:

The 2024 and October 2023 highs
The 50% retracement of the decline from the 2022 high

Since then, sellers have remained in control, pushing the pair below multiple support levels. In April the price fell below the floor between 0.8333 to 0.8373. However, after falling to the April 2025 low at 0.80325, the pair bounced - moving back above the old floor in May (above 0.8333 to 0.8373).

However, that bounce higher was short-lived, and the move lower was restarted in the very next week.

Since, then the price action has been decidedly more bearish with the break to new 2025 lows today at 0.80325. That level is now a close short-term risk level for sellers. Staying below it, and the door remains wide open for more downside probing. The current price is trading at 0.7993.

Source: ForexLive

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Adam

Economic

The three main indices in the United States all look positive from a longer-term perspective, and as we go into the Thursday session, it is likely that there are going to be buyers willing to participate yet again.

NASDAQ 100 Technical Analysis

The NASDAQ 100 rallied a bit during the trading session in early trading, as we are now breaking to fresh new highs. So, with that being said, a short-term pullback is more likely than not going to be a buying opportunity, perhaps all the way down to the 22,000 level. At this point, we broke higher, and screamed to the upside. And with this being the case, I don’t see any other choice but to be bullish at this point. Although it is worth noting that volume is a little lighter than it had been, quite frankly, this recovery has been far too much to fight.

Dow Jones 30 Technical Analysis

The Dow Jones 30 is looking to break out as well and perhaps go looking to the 43,500 level. The 42,900 level has been supportive over the last couple of days, and I think we continue to see a lot of upward momentum. Short-term pullbacks, again, I think, offer plenty of value here in the Dow Jones 30, which I believe has some catching up to do with some of the other indices.

S&P 500 Technical Analysis

The S&P 500 has rallied as well in the early hours, and it looks like we are going to do everything we can to reach the 6,150 level, which is a major swing high and all-time high. If we can break above there, then I think the S&P 500 really takes off and probably goes looking to the 6,300 level based on the measured move from previous trading before all of that tariff sell off. Regardless, this looks like a market that, if it drops, you have to be a buyer looking for value.

Source: fxempire

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Michelle

Economic

The International Monetary Fund has revised Saudi Arabia’s economic growth upwards amid the unwinding of production cuts by Opec+ members.

The Arab world’s largest economy is forecast to grow 3.5 per cent this year, up from a previous projection of 3 per cent in April, and 3.9 per cent in 2026, an upward revision of 0.2 percentage points from the last prediction.

“Saudi Arabia’s economy has demonstrated strong resilience to shocks, with non-oil economic activities expanding, inflation contained, and unemployment reaching record-low levels,” the IMF said on Thursday.

Saudi Arabia is focusing on diversifying its economy away from oil with an emphasis on the development of sectors such as technology, property, tourism and infrastructure as part of Vision 2030.

The kingdom is supporting the development of several industries spanning different sectors to generate employment and help its non-oil economy to grow.

The country's non-oil economy is expected to grow by 3.4 per cent in 2025, after recording a 4.2 per cent growth last year after “the continued implementation of Vision 2030 projects through public and private investment, as well as strong credit growth, which would help sustain domestic demand and mitigate the impact of lower oil prices”, the Washington-based lender said.

Oil prices have remained volatile amid a number of events including the introduction of tariffs by Donald Trump, US-Iran nuclear talks and the conflict between Iran and Israel that ended earlier this week.

Unwinding of production cuts by Opec+ members including Saudi Arabia and Russia have also been affecting oil prices. Last month, Opec+ agreed to increase its monthly oil output at 411,000 barrels per day for July, following similar levels for May and this month.

“Over the medium term, domestic demand – including momentum ahead of Saudi Arabia’s hosting of large-scale international events – is expected to push non-oil growth closer to 4 per cent in 2027 before stabilising at 3.5 per cent by 2030,” the IMF said.

Saudi Arabia is set to host two major global events, Expo 2030 and Fifa World Cup in 2034.

The direct impact of rising global trade tension amid Trump tariffs is also expected to be limited on Saudi Arabia as oil products – comprising 78 per cent of Saudi Arabia’s goods exports to the US in 2024 – are exempt from US tariffs, while non-oil exports account for only 3.4 per cent of the kingdom’s total non-oil exports, the lender said.

In April, US President Donald Trump levied an import tariff of 10 per cent on all Gulf countries.

Saudi Arabia’s inflation levels would remain lower at around 2 per cent, supported by a credible peg to the US dollar, domestic subsidies, and continued supply of expatriate labour and economic growth, according to the IMF.

The overall fiscal deficit is also expected to narrow in the medium term, driven by spending efficiency measures, it said.

Source: THENATIONALNEWS

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Warren Takunda

Economic

The U.S. economy shrank at a 0.5% annual pace from January through March as President Donald Trump’s trade wars disrupted business, the Commerce Department reported Thursday in an unexpected deterioration of earlier estimates.

First-quarter growth was weighed down by a surge of imports as U.S. companies, and households, rushed to buy foreign goods before Trump could impose tariffs on them. The Commerce Department previously estimated that the economy fell 0.2% in the first quarter. Economists had forecast no change in the department’s third and final estimate.

The January-March drop in gross domestic product — the nation’s output of goods and services — reversed a 2.4% increase in the last three months of 2024 and marked the first time in three years that the economy contracted. Imports expanded 37.9%, fastest since 2020, and pushed GDP down by nearly 4.7 percentage points.

Consumer spending also slowed sharply, expanding just 0.5%, down from a robust 4% in fourth-quarter 2024 and sharp downgrade from the Commerce Department’s previous estimate.

A category within the GDP data that measures the economy’s underlying strength rose at a 1.9% annual rate from January through March. It’s a decent number, but down from 2.9% in the fourth quarter of 2024 and from the Commerce Department’s previous estimate of 2.5% January-March growth.

This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending. Ryan Sweet of Oxford Economics called the downgrade in that figure “troubling,″ though he doesn’t expect to make a significant change to his near-term economic forecast.

And federal government spending fell at a 4.6% annual pace, the biggest drop since 2022.

Trade deficits reduce GDP. But that’s just a matter of mathematics. GDP is supposed to count only what’s produced domestically, not stuff that comes in from abroad. So imports — which show up in the GDP report as consumer spending or business investment — have to be subtracted out to keep them from artificially inflating domestic production.

The first-quarter import influx likely won’t be repeated in the April-June quarter and therefore shouldn’t weigh on GDP. In fact, economists expect second-quarter growth to bounce back to 3% in the second quarter, according to a survey of forecasters by the data firm FactSet.

The first look at April-June GDP growth is due July 30.

Source: AP

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Warren Takunda

Economic

The euro breached the $1.17 mark on Thursday, reaching levels last seen in September 2021. This 13% year-to-date surge positions the common currency on course for its strongest annual performance since 2017 — and potentially even since 2003. The rally therefore brings the euro closer to the psychologically significant 1.20 threshold

Since Donald Trump’s inauguration on 20 January 2025, the euro has appreciated roughly 15% against the dollar. But what are the reasons behind the euro's recent success, and how much further can it rise?

Fiscal turn in Germany is a game changer

The explanation lies in an unusual convergence of fiscal stimulus in Europe, waning confidence in US monetary policy, and a build-up of speculative dollar short positions that are fuelling the euro's ascent.

While the European Central Bank (ECB) has extended its rate-cutting cycle, the key shift underpinning the euro's strength has come from fiscal policy — particularly in Germany.

In March, the Bundestag approved a constitutional amendment exempting military and infrastructure spending from the country’s strict “debt brake” law.

This legal reform paved the way for a €500 billion infrastructure fund, earmarked for green energy, digital transformation, and regional development through 2035 — all structured off-budget to bypass debt constraints.

Simultaneously, Berlin has pledged to increase defence spending to 3.5% of GDP, aligning with NATO’s Readiness 2030 goals and the broader €800 billion ReArm Europe initiative.

US turmoil weighs on dollar sentiment

Across the Atlantic, the US economy has shown signs of softening. First-quarter GDP contracted, driven partly by a front-loading of imports ahead of new tariffs which were set to take effect in April.

However, market attention has focused more sharply on the political pressure mounting against Federal Reserve Chair Jerome Powell.

Despite Powell reiterating this week that rate cuts are premature — citing solid growth and tariff-driven inflation uncertainties — investor confidence in Fed independence has been shaken.

According to BBVA analysts: "Jerome Powell is not leaning toward a rate cut as soon as July, although there is an internal debate at the Fed about the timing of the next rate cut, and it may well continue to grow."

They added that the dollar’s weakness has deepened "amid reports that US President Donald Trump is considering selecting and announcing a replacement for Fed Chair Jerome Powell by September or October". This is despite the fact that Powell’s term is set to end in May 2026.

Markets interpret this as a potential "shadow chairman" scenario, where someone behind the scenes could keep interest rates low, thereby putting negative pressure on the dollar.

Euro-dollar outlook: What analysts are watching

Francesco Pesole, analyst at ING, underscored the growing relevance of upcoming US employment data.

“News on the jobs market has significant impact potential now that inflation figures for May have failed to trigger a dovish response by Powell. The rationale could be that if something moves on the second part of the mandate (full employment), a few more FOMC members could join the dovish ranks despite inflation concerns.”

He noted that markets currently price a one-in-four chance of a rate cut on 30 July and 62 basis points of easing by the end of the year.

Meanwhile, investor positioning continues to steer euro-dollar movements.

Matthew Ryan, Head of Market Strategy at Ebury, said: “EUR/USD is almost entirely driven by rising dollar shorts, rather than a more positive outlook for the common bloc’s economy.” In other words, the euro is rising against the dollar because investors are betting against the greenback, rather than placing more faith in the euro.

Technical indicators also point to continued momentum. Luca Cigognini, analyst at Intesa Sanpaolo, commented: “The short-term structure of EUR/USD remains generally bullish. A break above 1.1717, now a resistance level, could push the euro toward 1.1750, raising the next target to 1.1800/1.1820.”

Beyond those levels, traders are eyeing resistance at 1.1910 — the highs of August 2021 — followed by the psychological barrier at 1.20.

Higher targets include 1.2350 (January 2021) and 1.2550 (February 2018), but much will depend on how economic indicators and political developments evolve in the second half of the year.

Source: Euronews

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Glendon

Economic

Forex

Federal Reserve Bank of Richmond President Thomas Barkin said Thursday tariffs are very likely to push inflation up over coming months, in remarks that said central bank policy is where it needs to be to deal with what lies ahead.

“I do believe we will see pressure on prices,” Barkin said in the text of remarks prepared for delivery before a gathering of New York Association for Business Economics.

When it comes to tariffs and their impact on price pressures, “to date, these increases have had only modest effects on measured inflation, but I anticipate more pressure is coming,” amid comments from businesses that they expect to pass at least some of the rise in import taxes imposed by President Donald Trump.

“That said, I don’t expect the impact on inflation to be anywhere near as significant as what we just experienced” during the pandemic and there are signs that consumers will try to move away from tariffed goods, which could limit some of the upsides for higher inflation.

Last week, the Fed’s most recent gathering of the rate-setting Federal Open Market Committee saw officials leave their overnight target rate unchanged at between 4.25% and 4.5%. Uncertainty over the outlook is keeping the central bank on the sidelines amid expectations the tariffs will push up inflation this year while depressing growth and hiring.

In his remarks, Barkin noted the Fed is facing risks on both its job and inflation mandates. Citing the uncertainty of the outlook Barkin declined to say where monetary policy is heading.

But he said, “given the strength in today’s economy, we have time to track developments patiently and allow the visibility to improve,” adding, “when it does, we are well positioned to address whatever the economy will require.”

Barkin said that as the economy now stands things look pretty good and recent inflation data was “encouraging.” He said job growth has been “healthy.”