#TradeWarEases #USeconomy #Fed #TrumpTariffs
Well, friends, let's take another look under the hood of the global economy. Today's reports from the financial markets are a classic example of how one event, be it a tweet or a hint from a central bank, can trigger a chain reaction all over the globe. We will analyze why the dollar suddenly regained its spirit, where Treasury yields have crawled, and what the 'Japanese surprise' was that affected the overall picture. Buckle up, it's going to be interesting!
The rise of the dollar and Trump's 'delay' game
Our old acquaintance, the US dollar index, has risen slightly to 99.3. The reason for this is a sudden, albeit short-term, relief in trade battles. President Trump, like a magician, postponed his tariff tricks, moving the introduction of 50% tariffs on European imports from June 1 to July 9. This move certainly does not cancel the trade war but gives a breather. Europeans likely sighed with relief, although they understand that this is just an intermission. It turns out that a simple 'wait a minute' is enough for the dollar to feel better, and the market, as we know, loves stability, even if it is temporary.
Investor attention to fiscal policy and national debt
While some are watching trade maneuvers, other investors are closely watching the debates in the Senate. There is a grandiose tax cut and spending increase bill on the agenda from Trump. This document, if forecasts are to be believed, promises to significantly add to the already substantial national debt of the United States. When the government starts generously handing out 'cookies', the market always asks the question: 'Who will pay for this?'. And, as a rule, the answer is not always pleasant.
The yen is giving in, and Japan is preparing to 'save' bonds
Meanwhile, the dollar showed its strongest growth precisely against the Japanese yen. The reason? Rumors that Japanese authorities may be preparing to intervene to calm their bond market. This concerns a possible reduction in the issuance of new bonds. This comes after a sell-off in Japanese bonds pushed their yields to record highs. Nobody likes it when yields shoot to the moon. When the Japanese central bank even sneezes, the whole world feels a draft, and the yen, like a sensitive barometer, immediately reacts to such 'climatic' changes. Actions aimed at taming bond yields in one major economy can unexpectedly push other currencies.
Yield fluctuations and a voice from the Fed
And, of course, all this news could not help but affect the yields of US Treasury bonds. The yield on 10-year bonds fell by almost 4 basis points to 4.47%, while 30-year yields dropped by 5 basis points, falling below 5%. Investors, returning after the long weekend, rushed to buy American assets as if on command. This was, of course, bolstered by news from Japan and the same trade tensions. Bonds are not only boring, but also very indicative: a drop in yield indicates that demand for them is rising, which often means that investors are seeking a 'safe haven'.
Added intrigue is Federal Reserve Bank of Minneapolis President Neel Kashkari, who spoke in favor of keeping interest rates at their current level. His argument is simple: we need to wait until it becomes clear how the new tariffs will impact inflation. A sort of 'wait and see' approach. When Fed representatives say 'let's wait', the market starts to guess what they are waiting for, and this always adds intrigue to monetary policy.
In general, the picture is clear: the world of finance is not a boring textbook, but rather an exciting detective story, where new clues and suspects emerge every day. Today's episode showed how political statements, rumors about central bank actions, and even just the return of investors after the weekend can turn the market upside down. The dollar, yen, and bonds are all dancing to their own music, but the conductor seems to be constantly changing. And our task is to understand who he is today.