Global stock markets are essentially on hold until U.S. Federal Reserve Chairman Jerome Powell delivers his expected 0.25% cut to interest rates later today.
In the meantime, the real drama is all about the U.S. dollar—which is down 10.83% against foreign currencies on the DXY index year to date, and will likely tumble further as the Fed lowers interest rates on dollar-denominated debt.
Investors are selling the dollar in part because of President Trump’s attacks on the Fed. If the Fed stops being independent of political meddling, then its credibility as a source of sound monetary policy will become compromised, analysts have repeatedly warned. That will make the dollar a less reliable reserve currency—and it is already leading investors to hedge against U.S. assets, according to Deutsche Bank.
The dollar has put in such a feeble performance this year that it has begun to hurt foreign investors in U.S. assets. Foreigners own 19% of U.S. equities, according to Deutsche Bank’s research. The S&P 500 has grown 12% this year to date, but any foreigner will have seen more than 10% of that dollar value eaten away over the same time period by the falling value of the greenback.
The result, Deutsche Bank’s George Saravelos said in a research note earlier this week, is foreign investors are now increasingly hedging against the dollar when buying U.S. equities.
