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By: Vincent Deluard, Director - Global Macro Strategy
Political rhetoric is colliding with monetary policy. In a recent interview, StoneX Director of Global Macro Strategy Vincent Deluard weighed the risks surrounding President Trump’s attacks on Jerome Powell and the diverging paths of the Federal Reserve and the European Central Bank.
See our financial videos hub“Absolutely. I mean, scapegoat is the key word here…”. Deluard notes that the U.S. President is less interested in firing Powell than in finding a ready target if the economy cools. Past clashes, such as the 2018 pivot to a “more dovish Fed,” show the political appeal of shifting blame. The legitimacy of the Federal Reserve, therefore, is sat squarely in the cross-hairs of campaign-season optics.
“Well, it’s positive for the dollar… at some point, they would act as a magnet for global capital” notes Deluard, commenting that with U.S. policy rates likely steady while the ECB trims, higher dollar yields could pull foreign funds back to Treasuries. He adds that unpredictable tariff policy has already pushed some investors away; a sustained yield gap may reverse that flow and reduce the risk premium that has crept into U.S. assets.
Deluard observes that “The French are always in the low rate camp, because France has this big deficit problem, a lot of debt to roll over”, and ECB Vice-President François Villeroy de Galhau’s hint at “more room to cut” underscores Europe’s different macro needs. A stronger euro has sliced natural-gas costs by 39 % and Brent by roughly 20 %, easing inflation back toward target. For highly indebted France, cheaper funding and postponed reform are welcome side effects of the trade-war-driven currency shift.
If the Fed remains on hold while Europe eases, investors must weigh a firmer dollar against political noise in Washington. Central-bank independence is set to become a campaign talking point; any perception of interference could unsettle markets. Conversely, Europe may enjoy a window of stability, so long as export demand holds and energy prices stay subdued.
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--- Written by Gus Farrow
--- Expert: Vincent Deluard, StoneX Director of Global Market Strategy
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