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The global financial markets exhibited a mixed performance on Thursday, characterized by the stabilization of the U.S. dollar, a sharp decline in the Brazilian real, and a surge in Bitcoin's value. The dollar, after retreating from a recent two-week high, found support as investors seemed to absorb the impact of U.S. President Donald Trump's latest tariff proposals, except in the case of Brazil, where a threatened 50% levy triggered a significant drop in the real's value. The initial decline in the dollar was attributed to a sharp decrease in U.S. Treasury yields following a successful 10-year note auction, which alleviated concerns about a potential "Sell America" scenario that had previously affected Treasuries, the dollar, and Wall Street stocks. Overall, market sentiment leaned towards riskier assets, fueled by a perception that the most damaging tariff scenarios were becoming less probable. This positive sentiment contributed to Nvidia's achievement of becoming the first stock ever to reach a $4 trillion valuation and propelled cryptocurrency Bitcoin to an all-time peak, nearing $112,000. Further supporting the optimistic outlook were the minutes from the Federal Reserve's most recent meeting, which revealed that a majority of policymakers believed interest rate cuts would be appropriate later in the year. This expectation of future rate cuts typically weakens the dollar's appeal, as lower interest rates make dollar-denominated assets less attractive to foreign investors.
The dollar index, which measures the dollar's strength against six major currencies, remained relatively stable at 97.416, finding a floor after a previous decline. Meanwhile, the euro gained slightly against the dollar, trading at $1.1733, and sterling also rose marginally to $1.3609. Against safe-haven currencies like the Japanese yen and the Swiss franc, the dollar held steady, indicating a degree of stability in the market despite the tariff-related concerns. A closer examination of Trump's recent letters to trade partners reveals that, with the exception of Brazil, the proposed tariff rates were largely consistent with those outlined in his original "Liberation Day" announcement on April 2. Trump has also indicated a willingness to extend the August 1 deadline if countries present compelling proposals, suggesting a degree of flexibility in his approach. However, Brazil's situation is unique. Initially slated for a baseline 10% levy, the proposed tariff was significantly increased to 50%, with Trump citing not only trade practices but also the treatment of former Brazilian President Jair Bolsonaro as justification for the higher rate. Bolsonaro, a former ally of Trump, is currently facing trial on charges of plotting a coup to prevent current President Luiz Inacio Lula da Silva from taking office in January 2023. This political element has added complexity to the trade relationship between the U.S. and Brazil.
The Brazilian real experienced a sharp decline, dropping as much as 2.8% overnight to reach 5.6047 per dollar, a level not seen since June 6. The currency later stabilized somewhat, trading at 5.5826 per dollar. According to Michael Pfister, an FX analyst at Commerzbank, the reasons for the increased tariff on Brazil are "clearly politically motivated," noting that Brazil is one of the few countries with a trade deficit with the U.S. Pfister also expressed concern about the potential implications for both the Brazilian real and the U.S. dollar, suggesting that it creates uncertainty about which country might be targeted next. Despite the tariff-related concerns, there are also indications of potential progress in trade negotiations with other countries. Trump and other officials have stated that a deal with India is close, and the European Union is also reportedly moving towards a framework agreement. In other economic news, inflation data from Norway showed core inflation slightly higher than expected in June. The Norwegian krone remained largely unchanged against the euro but appreciated against the dollar. Meanwhile, Bitcoin continued its upward trajectory, rising 0.5% to around $111,268, just below its all-time high of $111,988.90. According to IG analyst Tony Sycamore, the new record high was driven by improved risk sentiment. While the market may have been hoping for a more dramatic surge, Sycamore believes there is still potential for Bitcoin to reach $120,000.
Source: Dollar steady, Brazilian real slides on tariff threat; bitcoin near record high