Morning Bid: Making a weak dollar "great" again

• One-month implied currency volatility surged to its highest level since July as the dollar selloff intensified, with the euro rising and prompting speculation about additional European Central Bank rate cuts
• U.S. consumer confidence plunged to its lowest level in over 11.5 years in January amid labor market anxiety and high prices, presenting a major concern for the Trump administration
• Gold prices hit new records as dollar weakness amplified commodity price increases, while long-term Treasury yields jumped on concerns about imported inflation from both tariffs and currency depreciation

Market Summary: Dollar Weakness and Trump Administration Policy Signals

Key Developments

The U.S. dollar stabilized Wednesday after overnight losses, with President Trump calling the weaker currency "great," fueling speculation his administration favors significant depreciation of what it views as an overvalued dollar. This stance contrasts with Treasury Secretary Scott Bessent's silence following Friday's dollar/yen intervention that triggered the greenback's global decline.

Market Impact

• Currency volatility: One-month implied currency volatility surged to highest levels since July
• Euro strength: Euro rally prompted warnings from Austria's central bank chief Martin Kocher that the ECB may need to respond, spurring speculation about additional rate cuts
• Gold: Reached new record highs amid dollar weakness
• Oil prices: Rose alongside dollar decline
• Treasury yields: Long-term yields jumped before stalling

Economic Data

U.S. consumer confidence plummeted to its lowest level in over 11.5 years in January (84.5 index), driven by anxiety over sluggish labor markets and high prices—a major concern for the Trump administration.

Market Reaction

Wall Street stocks advanced, with investors viewing dollar weakness as beneficial for overseas earnings. Major tech earnings from Microsoft, Meta, and Tesla were anticipated after the close.

Policy Implications

The Federal Reserve's policy decision was closely watched, as dollar weakness could exacerbate imported inflation concerns alongside tariff impacts. Trump continues pressuring Fed Chair Powell amid these currency dynamics.

Foreign holdings of U.S. assets remain a key concern as dollar volatility increases.