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.

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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 Hang Seng (Hong Kong) up 2.7%, Japan’s Nikkei up 1.6%, and Shanghai Composite up 0.9%. Wall Street futures also indicate modest gains on market open.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.8% yesterday on turnover of SAR 4.8 bn. The index is down 3.7% YTD.

In the green: Red Sea (+10.0%), EIC (+10.0%) and MESC (+9.9%).

In the red: SPM (-2.7%), Care (-2.1%) and Albaha (-2.0%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.8% yesterday on turnover of SAR 27.7 mn. The index is down 7.4% YTD.

In the green: Future Care (+6.7%), Tibbiyah (+6.2%) and Ladun (+5.8%).

In the red: Apico (-8.4%), SPC (-6.8%) and Naseej Tech (-5.5%).

CORPORATE ACTIONS-

Tadawul-listed Raoom Trading’s BoD signed off on the company’s 100% capital hike to SAR 125 mn by way of issuing bonus shares, according to a disclosure (pdf) to the exchange. The company will tap its retained earnings to grant existing shareholders one bonus share for every share they own in a bid to boost the firm’s liquidity and support its expansion plans.

Amwaj International’s BoD proposed a 33.3% capital hike to SAR 80 mn via a bonus share issuance, funded by SAR 20 mn from retained earnings, it said in a disclosure to Tadawul. The increase is aimed at supporting future growth and expansion, with shareholders set to receive one bonus share for every three held. The move is still pending regulatory and shareholders’ approval.

The Middle East Pharma Industries’ (Avalon Pharma) board greenlit a SAR 25 mn dividend distribution for 2H 2024 at SAR 1.25 per share, it said in a disclosure to Tadawul. The distribution date is set for 15 May.