The dollar falls, but emerging markets rally, after Trump attacks Fed

New York — The dollar weakened on Tuesday after US President Donald Trump slammed the Federal Reserve for raising interest rates, while global equity markets rose as strong economic and earnings growth favoured stocks in a relatively benign environment.

Wall Street shares rose, following stock market gains worldwide, with the benchmark S&P 500 edging closer to an all-time high.

Trump said in an interview with Reuters on Monday that he was “not thrilled” with the Fed under his appointee, chair Jerome Powell, for raising rates and that the US central bank should do more to boost the economy. Trump also accused China and Europe of manipulating their currencies. The euro is down about 3.8% so far this year against the dollar, while the Chinese yuan has slipped 5.1% this year against the greenback.

“It would appear that Mr Trump would like to keep the dollar a little on the weak side in order to remain competitive,” said CMC Markets chief markets analyst David Madden.

The dollar index, which tracks performance against a basket of six major currencies, fell 0.31% on Tuesday, and has slid almost 1.2% over the past four days, its worst such run since late March. The dollar’s weakness eased the pressure on many emerging markets, which have struggled in recent weeks as worries over Turkey precipitated a sell-off in emerging market assets around the world.

MSCI’s benchmark emerging-equities index rose 1.03% and was on track for a third day of gains after Trump’s comments. MSCI’s gauge of stocks across the globe gained 0.4%, while the pan-European FTSEurofirst 300 index of leading regional shares rose 0.25%, lifted by gains in Bayer, Total and Novo Nordisk.

More encouraging earnings reports, led by medical device maker Medtronic posting a better-than-expected quarterly profit, lifted US equities and shares in Europe.

Sales growth and operating margins for companies in the S&P 500 set records in the second quarter and earnings should be strong for the next couple of quarters, said Michael Geraghty, equity strategist at Cornerstone Capital Group. However, a price-to-earnings multiple of 20 will make it hard for stocks to move materially higher, with earnings comparisons getting tougher and earnings growth slowing, he said.

“The reason we’re up is because we’re not down,” Geraghty said. “There’s no Turkey issue weighing on stocks today, there’s been no escalation in the trade and tariff situation.”

The S&P 500 hovered just below its January 26 record high and was poised to mark a major milestone on Wednesday when the bull market turns 3,453 days old, making it the longest such streak in the eyes of some market watchers.

The Dow Jones Industrial Average rose 80.92 points, or 0.31%, to 25,839.61. The S&P 500 gained 11.3 points, or 0.40%, to 2,868.35; and the Nasdaq Composite added 57.48 points, or 0.73%, to 7,878.49.

Trump, who criticised the Fed when he was a candidate, said in the interview other countries benefited from their central banks’ moves during tough trade talks, but the US was not getting support from the Fed. “During this period of time I should be given some help by the Fed. The other countries are accommodated,” Trump said.

The dollar index fell 0.41%, while the euro gained 0.44% to $1.153. The yen weakened 0.31% against the greenback at 110.43 per dollar.

US treasury yields rose on improving risk appetite and as investors awaited the minutes from the Fed’s August meeting on Wednesday and a speech by Powell in Jackson Hole, Wyoming, on Friday. Expectations for two additional Fed rate hikes this year were lower a day after Trump’s comments. Benchmark US treasury 10-year notes fell 7/32 in price to yield 2.846%.

Oil rose to its highest in a week, buoyed by the prospect of price support from US sanctions on Iran, though the US-China trade dispute kept traders and analysts cautious. Brent crude futures rose 28c to $72.49 a barrel and US crude rose 82c to $67.25 per barrel.

Reuters