Markets were relatively calm last week - until late on Friday, when President Trump launched a series of personal attacks against Federal Reserve Chair Jerome Powell.
On his social media feed, Trump labelled Powell “a major loser” for not lowering interest rates, criticising him for being too slow to act in support of the US economy. This has raised concerns that Trump might attempt to remove Powell from his position. While the legal grounds for such a move remain unclear - and Powell himself has stated that he does not believe the President has that authority - the mere suggestion has unsettled investors. Since markets reopened on Sunday night, we’ve seen a broad sell-off in US stocks, bonds, and the USD.
Generally, market sentiment remains dominated by the unpredictability of the White House, pushing economic data into the background. However, tomorrow’s PMI reports will offer a valuable first look at how much damage Trump’s erratic policy approach has done to business confidence. Recent sentiment surveys have consistently painted a uniformly bleak picture, with both consumers and manufacturers fearing rising prices/costs from tariffs. Manufacturers, in particular, are holding back on investment - an ironic twist, given this is the very sector Trump aims to support.
Since “Liberation Day”, the Euro has emerged as one of the best-performing major currencies which suggests that Eurozone markets are receiving a significant part of the capital that is fleeing the US. Notably, the Euro continued to strengthen even after last week’s relatively dovish ECB meeting - underscoring investors’ growing preference for the Eurozone’s institutional stability over the US's policy turmoil.
As a result, the GBP/USD rose around 2% higher from last week’s low and has traded towards the highest levels in 3-years (to around where it briefly spiked last September). The EUR/USD climbed to nearly 2.4% above last week’s low and to a 3.5yr high. Meanwhile, GBP/EUR has remained within a relatively tight range over the past week, currently trading about 1% above its recent lows.
