The US dollar continued to drop during Asian trading. The EUR/USD reached its highest level since September 2021, and the USD/CNY hit a low not seen since November of last year. Additionally, the USD/CHF fell to its lowest point since 2011, while currencies like the AUD, NZD, JPY, GBP, and CAD all gained strength against the dollar, along with an increase in gold prices. So far in 2025, the dollar has declined consistently, totaling nearly a 10% drop. This is the worst performance for the dollar in the first half of a year in about forty years.

US Fed Chair Appointment Speculation

The latest dip in the dollar was partly due to a Wall Street Journal article suggesting that Trump might rush to appoint a new Fed Chair to undermine Jerome Powell. Japanese markets reacted briefly to Akazawa’s comments against US auto tariffs, but this quickly faded. Reuters reported that the US allowed ethane shipments to China, which temporarily improved risk sentiment, although there are still unresolved issues with unloading at Chinese ports. In Japan, the auction for 2-year JGBs saw strong demand, with a bid-to-cover ratio of 3.90. The average yield was 0.729%, with the lowest accepted bid at 0.735%. The slightly widened auction tail indicates ongoing changes in short-term policy risks. This situation shows continued pressure on the dollar, which is now struggling against several factors. The overnight moves aren’t just temporary blips; they’re part of a longer trend that’s gaining momentum. The euro surpassing levels not reached since late 2021 indicates that deeper changes in expectations are at play.

Structural View on the Dollar

The dollar’s nearly 10% drop this year is a clear indication of weakened confidence, not just market sentiment. This represents the worst performance in four decades and suggests that trust in dollar-based assets is decreasing. Investors, especially those involved in interest-rate derivatives or currency volatility, should reassess current valuations compared to expectations for the rest of the year. The article suggests that political factors might change the Federal Reserve’s leadership. If policymakers in Washington decide to appoint a new central bank head sooner than expected—potentially favoring looser policies—the bond markets and rate-sensitive options may need to be re-evaluated. This isn’t just a speculative risk anymore; it’s reflected in a prominent article that prompts market reactions. The rise of gold alongside currencies like the AUD and NZD is not just a coincidence. Such alignment suggests that capital is being redirected. Price movements in commodities and foreign exchange indicate that hedging strategies are adapting to lower confidence in US returns. The concern regarding Japanese auto tariffs was short-lived, as traders quickly discounted its impact on policy in Tokyo. More importantly, the JGB auction showed exceptional demand, with a bid-to-cover ratio approaching four, indicating continued foreign interest despite yields being under 1%. The slight widening in the auction tail suggests that while demand is robust, it is selective. Market participants may now be questioning the sustainability of the Bank of Japan’s short-term policies. The brief spike in risk sentiment after news of US-China ethane shipments indicates hopes for improved trade flows, but without concrete details on port activities or approvals, a significant rise in emerging market commodity demand is unlikely for now. In the coming days, we must pay attention to shifts in positioning in the short end of the rates curve, especially as central bank policies worldwide may need to respond if trends in foreign exchange and commodities start affecting inflation expectations. Traders in rate-sensitive products should revisit their hedging strategies and volatility exposure across different time frames. Spreads that widened earlier this year may now be narrowing for reasons beyond mere noise. Create your live VT Markets account and start trading now.

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