Former President Donald Trump’s shadow still looms large over the political and economic arena as the country heads towards consequential fall events. Incidentally, the 250 th anniversary of the founding of the U.S. Army also falls on Trump’s 79 th birthday—June 14. That alignment unfortunately helps create the conditions for Trump’s effort to return to center stage. He particularly longs for that adoration after missing for the first time a huge military parade during his presidency back in 2018.
The U.S. dollar is losing tremendously on the financial capital market. At the same time, a generalized improvement in risk sentiment is further lifting the euro against the dollar (EUR/USD). Other worries stemming from Trump’s trade war may limit the euro’s upside against the dollar. Moreover, risks to global growth are bound to worsen this daunting task. That leaves the next Consumer Price Index (CPI) report, scheduled for release on Thursday, on center stage for market players.
The foreign exchange market is positioning itself politically. Importantly, traders are actively bidding dollars higher, even after last week’s 90-day default denial. The GBP/USD currency pair is following suit, continuing to climb towards the 1.2800 level.
Trump’s actions and decisions are anticipated to create distractions from the stock market’s performance. Under his new directive, Defense Secretary Hegseth goes to Panama. Though this move is mostly symbolic, it has raised eyebrows and his desire to create a strong national presence foretells of be being very active, possibly sought after military interventions.
Romanchuk, a bond expert, highlights that “it is not a financial crisis until credit gets hit.” He continues, describing how smuggling becomes a natural first reaction when high tariffs or sanctions hit an economy. To his mind, if debt cannot be easily rolled over, then economic activity will just stop cold.
“… as firms can issue new debt to roll over existing debt, the game of capitalism goes merrily along. However, if debt cannot be rolled over, activity will rapidly seize up.” – Romanchuk
Market analysts have noted that trading conditions have been unpredictable. Guy LeBas, the chief fixed income strategist at Janney Capital Management, highlighted a major concern. He further articulated the present markets as “sloppy” and that they don’t adhere to any form of fundamental or technical analysis.
The fog of confusion as to what the Federal Reserve will do next is still thick. Chairman Jerome Powell recently stated, “It is too soon to say what will be the appropriate path for monetary policy.” This lack of clarity only adds to market uncertainty and feeds to the Fed’s overall dovish tone for the future.
These tactics Trump has employed with tariffs will likely backfire on him should there be a major crash in the stock market. This new possible vulnerability has led us to question his ability to continue to manipulate market sentiments and steer economic policy.
“… if credit market conditions remain orderly, we will get a very rapid divergence between equity commentators — and the White House — and the Fed.” – Romanchuk
As the long-term dynamics of the world economy change, the interaction between Trump’s direct influence and underlying market forces will remain a story to watch. Reports suggest that China’s vast holdings of U.S. debt could emerge as a critical factor in the ongoing geopolitical tensions between Beijing and Washington.
“This all raises the question of whether China’s huge holdings of U.S. debt could become a weapon in the escalating game of chicken between Beijing and Washington.” – Naoyuki Shinohara, Japan’s former top currency diplomat