Global confidence in the USD wanes as trade wars continue

USD dominance under pressure? Fund managers are warning policy volatility and trade barriers are threatening the USD’s status as a safe haven for global capital, the Financial Times reports. The greenback fell to a three-year low against the EUR on Friday, following US President Donald Trump’s erratic policymaking and reciprocal tariff decisions.

The slump is somewhat surprising, as the greenback typically strengthens during global financial stress, with investors seeking refuge in US treasury bonds.

The reasons? The weaker USD — alongside the rise in bond yields — may point to a “capital flight,” Fidelity International Senior Portfolio Manager Mike Riddell told the FT. “This suggests foreigners have been and are continuing to sell US stocks and sending their money elsewhere,” Axios reports, citing Howard Ward and John Belton, co-chief investment officers of value at Gabelli Funds.

The trend may also have to do with the US president floating the rule of law and threatening the Federal Reserve, Edward Fishman, a former top sanctions official at the US State Department, told the FT. He speculated that this could lead, over time, to the emergence of a “multi-polar” currency system where the EUR played a bigger role.

Selling America: With nearly USD 2 tn in annual foreign capital inflows, the US saw its share of global capital flows rise to 41% in 2024 — nearly double the pre-pandemic levels — Axios reports, citing gov’t data. However, the tariff-triggered sell-off of assets, including equities, bonds and the USD — a trend which ING interest rate strategists called “ sell America Inc. ” — may threaten redirecting these inflows elsewhere.

The drop led fund managers to doubt the USD’s market dominance and role as a global capital haven, raising concerns about the greenback serving as a reserve currency during market volatility. “There is [now] a very good case for the end of [USD] exceptionalism,” JPMorgan Asset Management Global Head of Fixed Income Bob Michele told the salmon-colored paper.

BUT- A weaker USD can be a boon for the US, some economists argue. “The reserve function of the [USD] has caused persistent currency distortions and contributed to … unsustainable trade deficits,” weighing down US competitiveness and manufacturing, said Stephen Miran, Chairman of the White House Council of Economic Advisers (watch, runtime: 1:04:00).

The recent tariffs are meant to correct these dated trade trends, Miran said, adding that a weaker greenback may redistribute the “burden of peace and security” while returning dynamism to the US economy.

MARKETS THIS MORNING-

Trump’s pause of tariffs on consumer electronics led Asian markets to climb this morning, with Hong Kong’s Hang Seng up 2.7%, Japan’s Nikkei up 1.6%, and mainland China’s Shanghai Composite up 0.9%. Wall Street futures also indicate modest gains on market open.

THE CLOSING BELL-

The EGX30 rose 1.2% at yesterday’s close on turnover of EGP 3.2 bn (9.4% below the 90-day average). Local investors were the sole net buyers. The index is up 4.8% YTD.

In the green: EFG Holding (+5.4%), Sidi Kerir Petrochemicals (+4.7%), and Alexandria Container and Cargo Handling Company (+4.1%).

In the red: GB Corp (-2.0%), and CIB (-0.6%).

CORPORATE ACTIONS-

#1- Mopco will pay shareholders a dividend of EGP 3.50 per share and distribute bonus shares of EGP 0.379 per share for its 2024 earnings after its general assembly approved the move, according to an EGX disclosure (pdf).

#2- Sidpec’s general assembly approved distributing a dividend of EGP 1 per share for its 2024 earnings, according to an EGX disclosure (pdf). The assembly also approved the distribution of 226.8 mn in bonus shares at a rate of one share for every four held — with a nominal value of EGP 2 per share.