On Wednesday, Wednesday stabilized when President Donald Trump retired from his previous threats to fire the president of the Federal Reserve, Jerome Powell. This development, together with a change in the president's tone of trade, helped relieve some of the market tensions they had weighed in global financial markets.
Trump had previously participated in a series of harsh criticism against Powell, accusing the Fed of not reducing aggressively interesting interest rates to support economic growth. His comments had fed concerns about the independence of the Central Bank, which caused significant volatility in the assets of the United States, especially in the dollar.
The president's comments had also caused fears of a possible confrontation between the White House and the Fed, one of the cornerstones of US economic governance.
However, in a change marked on Tuesday, Trump sought to quell those concerns, telling White House journalists: “I have no intention of saying goodbye,” referring to Powell. He also expressed the preference that Powell was “a little more proactive” to reduce interest rates, a comment that helped relieve investors' concerns.
Trump's comments were a relief for markets, allowing the dollar to recover some of its recent losses. This investment also marked a critical turning point after weeks of public pressure on Powell, which had caused fears that the president could seek to undermine the autonomy of the Central Bank.
In the first operations on Wednesday, the dollar was widely strengthened, increasing more than 1% against Japanese Yen and also winning against the Swiss Franc. The Greenback briefly reached its highest levels in weeks, since the merchants reacted to the president's posture change. The dollar also jumped against the main currencies such as the euro and the British pound, after Trump's comments provided some clarity about the perspectives for the monetary policy of the United States.
The Yen, which had previously increased to a maximum of seven months against the dollar, returned on some of its profits as the feeling of the market improved. The recovery of the US currency occurred in response to Trump's decision to mark his attacks against Powell, which had led to a sale of US assets, including government shares and bonds.
The US stock market also reacted positively to Trump's comments. Wall Street saw a solid rebound on Tuesday, extending a manifestation of help until Wednesday. The one that had been under pressure in recent weeks increased 1.8% in the futures trade, while the Nasdaq gained 2%. The feeling of investors was further reinforced by some strong corporate profits reports, which helped compensate for concerns about the broader economic perspectives.
“The mood in the market has certainly changed. The aggressive feeling of 'selling America' that dominated the markets previously has reverted,” said Chris Weston, Pepperstone research manager, a brokerage firm. “The markets are increasingly in tune with the fact that President Trump often returns his most combative rhetoric, especially when it comes to the Federal Reserve.”
While Trump's comments about Powell were a key factor that promoted the demonstration of the dollar, the market was also promoted by its comments on commercial relations between the United States and China. Trump hinted that a commercial agreement with China could lead to lower tariffs in Chinese imports, a sign that tensions between the two largest economies in the world could relieve in the near future. His comments on El Comercio were seen as an attempt to reduce the temperature in the tariff dispute, which has been an important source of uncertainty for global markets.
“Trump's recent comments suggest that it can be open to the decallation of commercial tensions with China,” said Matt Simpson, a senior market analyst of City Index. “If tariffs are reduced, that could boost world economic growth, which would be positive for risk assets such as basic actions and products, and of course, the dollar.”
At the same time, the Secretary of the United States Treasury, Steven Mnuchin, shared his optimism regarding the commercial situation, expressing his confidence that the United States and China would reach an agreement that would address the commercial imbalance and other key issues. “Both parties realize that the status quo is not sustainable, and there are ongoing negotiations to resolve the matter,” said Mnuchin.
Despite the demonstration of relief in the shares and the dollar, some analysts warned that the underlying economic risks have not disappeared. The US economy is still dealing with the effects of the commercial war, and there are concerns about a possible global slowdown. The International Monetary Fund (IMF) recently reviewed its growth projections for the United States and China, attributing the reduction to the negative effects of rates and other commercial restrictions.
The uncertainty about commercial negotiations has also weighed oil prices, which had suffered a strong decrease in recent weeks due to the fears of a global economic deceleration. On Wednesday, oil prices managed to recover some of the losses, with an increase in almost 1%. The recovery was helped by the expectations of a reduction in inventories and continuous tensions with Iran, which continue to interrupt world oil markets.
As the market continues to digest Trump's latest comments, investors are closely observing to obtain more developments in both the Federal Reserve and the commercial conversations of the US-China. The next political decisions of the Fed, including the potential for interest rate cuts, will be a key focal point for investors in the coming months.
In conclusion, the strong rebound of the US dollar and the widest market rally reflect a momentary sigh of relief for investors, after a period of greater uncertainty. Trump's decision to relieve his rhetoric in the Fed and suggest lower tariffs with China has provided very necessary clarity and optimism in the markets. However, the economic challenges linked to ongoing commercial disputes and the possible changes in the monetary policy of the United States probably remain central issues in the financial landscape in the future.
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