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In the Market: How the US is daring the world to find a dollar alternative

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By Paritosh Bansal

(Reuters) -The United States is merrily chipping away at the pillars that hold up the dollar as the world’s reserve currency, with the latest blows coming from some powerful Americans questioning the rule of law following the conviction of Donald Trump.

In doing so, it is effectively daring the rest of the world to find an alternative – and so far, it appears to be winning. 

The attacks on the legal system in the aftermath of former President Trump’s conviction follow other moves that are seen by some as the United States throwing down the gauntlet to the rest of the world.

The country has radically increased the use of sanctions as a punitive foreign policy tool. And it is adding on an immense amount of debt, leaving hapless foreigners who seek the safety and depth of its markets to fund its excesses. 

Over the past three weeks, I have been asking financial services executives, global investors and other experts in Asia and the United States how long they think the Americans can keep at it without meaningful blowback. Several of the sources requested anonymity to speak candidly about the situation.

These conversations showed consternation is growing, both at home and abroad, about the consequences of U.S. hubris. But despite trying, no one so far has been able to find a credible alternative or expects one to emerge anytime soon, and they have partly themselves to blame.

In Asia, for example, people are asking with increasing urgency what’s their ‘America plus 1’, as they search for ways to reduce their U.S. exposure and boost non-dollar trade flows.

But attempts to build such systems are slow-going or haven’t gotten traction. And rising authoritarianism, threats to individual and property rights and geopolitical tensions have meant that even if U.S. assets are less attractive than they were before, other options are worse. 

A recent survey, for example, shows central bank reserve managers plan to increase their dollar holdings over the next 12-24 months as the rise in global geopolitical tensions and need for liquidity draw them to the currency.

“Perhaps ironically, the U.S. dollar’s strength is, in part, due to its near-unchallenged safe-haven status,” said Steve H. Hanke, a professor of applied economics at Johns Hopkins University, who served on former President Ronald Reagan’s Council of Economic Advisers. “That said, most investors don’t understand geopolitics and the dangers that lurk below the surface – until it’s too late.”


At its core, the dollar’s dominant role in the world draws from the United States’ democratic principles. It is supported by the massive size of its economy, the depth of its markets, and the strength of its institutions and the rule of law. 

The belief in democracy runs deep. Last week, I asked U.S. Securities and Exchange Commission Chair Gary Gensler, who has been in government since 1997, whether partisan politics had made the job of officials like him harder. A conservative-leaning U.S. appeals court had struck down one of his signature initiatives that morning. 

“I believe in this constitutional system that we have. It’s messy,” Gensler said. “It’s democracy.”

Nevertheless, the messiness is testing some of the underpinnings of the dollar’s global appeal.

Attacks on the U.S. legal system have increased after the Trump verdict in a New York court. Florida Governor Ron DeSantis, for example, called it a “kangaroo court” on the social media platform X, saying “the verdict represents the culmination of a legal process that has been bent to the political will of the actors involved.” 

A major investor based in Asia said potential threats to U.S. institutions were also worrying. Any debasing of the Federal Reserve’s authority — as Trump allies are reportedly contemplating — would affect the dollar’s credibility, the investor said, adding that such a development could see a double-digit depreciation of the currency. 

Trump’s campaign for his Republican presidential bid has played down such reports of what conservative groups might be planning.


A senior New York-based financial services executive who was traveling in Asia said he is hearing from clients who think the U.S. and Western financial policy is “undermining the dollar and the Western financial system more broadly.”

He pointed to an “ever expanding thicket of sanctions” as one reason.

And the West is pushing the envelope further. The financial executive said the discussion that the West might seize some $300 billion of sovereign Russian assets that were blocked over Ukraine undermined the United States’ safe haven status. “The West crossed a Rubicon there,” the executive said.

An October 2021 Treasury Department review of sanctions found such designations had increased to 9,421 by that year from 912 in 2000. It noted at the time that “American adversaries — and some allies — are already reducing” their use of the dollar.

An Asia-based investor said he was watching another court case closely to test the strength of the rule of law: ByteDance’s challenge of a U.S. ban on TikTok. He is watching for the evidence that the U.S. government would produce to back up claims of the app being a national security threat. 

© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/file photo

If no proof is publicly offered, then it would “feel that the checks and balance, the independence of the legal system, may not be there — at least in this case,” the investor said. 

But then he added that even that may not turn him away from the United States. It’s still more independent and better than many other places, he said.  


Dollar slips off highs ahead of PCE data, euro sees some support

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on – The U.S. dollar edged lower Monday, consolidating after climbing to a near eight-week high last week, while the euro rose despite weak German business sentiment.

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 105.235, after touching a high of 105.91 last week.

Dollar looks to PCE data for guidance

The U.S. currency received a boost last week after the release of stronger-than-expected readings, with the resilient U.S. economy potentially creating more room for the Federal Reserve to keep interest rates elevated.

Traders have banked some of those gains at the start of the new week, as the focus turns towards the release of price index data. 

Fed officials have called for more data showing a slowing of inflation before agreeing to cut interest rates, and this Friday’s reading of the Fed’s preferred inflation gauge is likely to factor into the outlook for interest rates.

Economists expect annual growth in the index to slow to 2.6% in May. A soft reading is likely to bolster bets on a rate cut as early as September, which futures currently price as a 65% prospect, according to the CME FedWatch tool.

Euro rebounds despite dip in Ifo reading

rose 0.2% to 1.0718, rebounding after recent losses despite German business morale unexpectedly falling in June.

The Ifo institute said its declined to 88.6 in June from 89.3 in May, compared with expectations of a reading of 89.7.

“The German economy is having difficulty overcoming stagnation,” said Ifo president Clemens Fuest.

The single currency has dropped over 1% this month after the right-wing performed well in the European Parliament elections earlier in June, resulting in French President Emmanuel Macron calling a snap election.

rose 0.1% to 1.2659, with sterling stabilizing after falling close to a five-week low in the wake of the Bank of England’s latest .

The BoE kept rates on hold, but some policy makers said the decision not to cut was “finely balanced”, raising expectations that policymakers will agree to a cut when they next meet at the start of August.

“Markets remain undecided on an August move (14bp priced in) and in our view, are also still too conservative on the total easing this year with 47bp versus our call for 75bp,” analysts at ING said, in a note.

“Our dovish BoE view means a bearish call on the pound this summer. We could also see some negative spillover on GBP from the UK election (4 July), where a Labour landslide win is largely expected – but perhaps a good result from the populist hard-Brexiteer Reform UK party may create some market jitters.”

Yen falls, drawing intervention talk  

In Asia, traded 0.1% lower to 159.68, retreating after the pair rose as high as 159.94 in early trade Monday, its highest since April 29, when it reached a 34-year high of 160.245 leading to Japanese authorities spending roughly 9.8 trillion yen to support the currency.

The yen’s recent weakness drew warnings from several major Japanese officials over more intervention, with the country’s main currency diplomat Masato Kanda saying the government would “intervene 24 hours a day if necessary.” 

edged higher at 7.2618, trading within a very narrow range with the yuan close to its lowest in seven months, hurt by worries about weakness in the world’s second-largest economy.


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Asia FX weak amid dollar strength; yen on intervention watch

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on– Most Asian currencies were fragile on Monday as the dollar steadied near two-month highs, while weakness in the Japanese yen sparked caution over potential intervention measures by Tokyo. 

Sentiment towards regional markets was also dampened by fears of a trade war between China and the European Union, after Chinese officials warned of retaliatory measures against European tariffs on Chinese electric vehicles. 

Markets were also reeling from stronger-than-expected U.S. purchasing managers index readings, which sparked heavy flows into the dollar and out of risk-driven assets. 

Japanese yen weak, on intervention watch as USDJPY nears 160

The yen was the biggest point of focus among Asian currencies on Monday, as its pair, which gauges the amount of yen needed to buy one dollar, came within spitting distance of 160 yen.

The level was the pair’s highest since 1986, and had attracted heavy amounts of government intervention in currency markets in May, which saw the USDJPY pair fall as low as 151.

The yen’s recent weakness drew warnings from several major Japanese officials over more intervention. Top currency diplomat Masato Kanda said the government would “intervene 24 hours a day if necessary.” 

His comments spurred some strength in the yen, with the USDJPY pair falling to 159.7 yen.

Chinese yuan, Asia FX under pressure from EU tensions 

The Chinese yuan’s pair steadied at a seven-month high on Monday, as the yuan was battered in recent weeks by souring relations between China and the EU.

Chinese officials said over the weekend that a trade war with the EU was possible in the face of import tariffs on Chinese EVs. German and Chinese ministers were also set to meet this week.

Concerns over a trade war kept traders averse to risk-heavy currencies, which sparked weakness in most Asian units. The Australian dollar’s pair fell 0.1%, while the South Korean won’s pair rose 0.1%. 

The Singapore dollar’s pair rose slightly, while the Indian rupee’s pair fell 0.1% but remained in sight of recent record highs.

Dollar strong, PCE inflation awaited

The and both rose slightly in Asian trade and were at their highest levels since early-May. 

The greenback was boosted by stronger-than-expected PMI readings, which sparked concerns that a resilient U.S. economy would give the Federal Reserve more headroom to keep rates high.

Focus was now on key data, due this Friday. The reading is the Fed’s preferred inflation gauge and is likely to factor into the outlook for interest rates.

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Dollar weakens after yen steadies amid intervention jitters

letizo News



By Alden Bentley, Samuel Indyk and Ankur Banerjee

NEW YORK/LONDON (Reuters) -The dollar eased from a near eight-week high on Monday, with traders back on alert for intervention to support the yen after the Japanese currency flirted with the 160 per dollar level that had earlier drawn verbal warnings from Japanese authorities.

Dollar/yen topped at 159.94 in early trade, its highest since April 29, when the yen touched a 34-year low of 160.245, leading to Japanese authorities spending roughly 9.8 trillion yen to support the currency.

It briefly tumbled in the European morning to 158.75 per dollar, and was last 0.28% weaker at 159.35.

“Certainly didn’t look like intervention … nonetheless, it does speak to how jittery the market likely is about the prospect for intervention,” said Michael Brown, senior research strategist at Pepperstone.

“I think so long as any further weakness is not especially rapid or disorderly in nature, the MoF (Ministry of Finance) are unlikely to step in just yet.”

Earlier, Japan’s top currency diplomat Masato Kanda said authorities will take appropriate steps if there is excessive foreign exchange movement, and that the addition of Japan to the U.S. Treasury’s monitoring list would not restrict their actions.

The yen has come under renewed pressure after the Bank of Japan’s (BOJ) decision this month to postpone reducing bond-buying stimulus until its July meeting. It is down 1.5% in June.

A summary of opinions at the BOJ’s June policy meeting on Monday showed some policymakers called for raising interest rates in a timely fashion as they saw a risk of inflation overshooting expectations.

The yen, which is highly sensitive to U.S. Treasury yields, is down more than 10% against the dollar so far this year, weighed down by the wide difference between interest rates in Japan and the United States.

“We are all trying to figure out if there is a specific level that the MOF may have in mind in terms of defense or whether or not it comes down to general market conditions,” said Brian Daingerfield, FX strategist at Natwest Markets in Stamford, Connecticut.


The spotlight this week will be on Friday’s release of the U.S. personal consumption expenditures (PCE) price index, which the Federal Reserve relies on to gauge progress in getting inflation down to its 2% target.

A number showing price pressures easing is likely to bolster bets on a rate cut as early as September, which futures currently price as a 70% prospect.

The , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.41% to 105.45, edging back from a nearly eight-week high of 105.91 it touched last week.

Another focus through the week will be politics. The first U.S. presidential debate between President Joe Biden and his predecessor Donald Trump is on Thursday after U.S. markets close.

“Certainly there’s quite a bit of interest in whether or not the dollar is specifically mentioned,” said Daingerfield. “We know former President Trump has at times criticized the value of the dollar as being too strong.”

The first round of voting in the French election is on Sunday.

“You’re going to see a lot of defensive positioning going into the first round of the French election and U.S. presidential debate,” said Simon Harvey, head of FX analysis at Monex.

The euro, which has been under pressure since French President Emmanuel Macron called a snap election earlier this month, was up 0.44% at $1.0738 but was still down about 1% in June so far.

France’s far right National Rally (RN) party and its allies were seen leading the first round of the country’s elections with 35.5% of the expected vote, an opinion poll published on Sunday showed.

RN lawmaker Jean-Philippe Tanguy, who is widely seen as the most likely candidate to head the finance ministry if the party wins and forms a government, told Reuters an RN government would stick to the European Union’s fiscal rules.

Sterling strengthened 0.28% at $1.268. The Australian dollar strengthened 0.18% versus the greenback to $0.6651 and the strengthened 0.16%.

© Reuters. U.S. Dollar and Japan Yen notes are seen in this June 22, 2017 illustration photo.   REUTERS/Thomas White/Illustration

Meanwhile, spot yuan was trading at 7.2585 per dollar, close to its lowest in seven months, weighed by broad strength in the dollar and worries about weakness in the world’s second-largest economy. [CNY/]

In cryptocurrencies, bitcoin fell to its lowest since May 10 and was down 4.52% at $61,267.00. declined 5.98% at $3310.26.

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