by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of why the US dollar continues its slide against major global currencies. We then provide a briefing on the leading contenders to head the Federal Reserve as the transition from Chair Powell nears. From there, we pivot to the surge in silver prices across Chinese markets, growing apprehension among Middle Eastern nations regarding potential US strikes on Iran, and North Korea’s latest efforts to bolster its nuclear deterrent. We also include a roundup of economic data from the US and international markets.

Dollar Drop Continues: The US dollar slid against major currencies amid growing concerns that the White House may not be fully committed to a strong-dollar policy. On Wednesday, the greenback fell to its lowest level since 2022, extending a four-day decline. The sell-off accelerated following comments from the president that he was unconcerned by the currency’s recent weakness. This shift in tone has fueled speculation that the administration may be tolerating, or even encouraging, a weaker dollar as it looks to protect the US bond market.

• The US dollar’s decline appears to have been driven by potential currency intervention from the New York Federal Reserve. On Friday, officials reportedly conducted a “rate check,” surveying the market to gauge liquidity and pricing for a potential intervention. This move follows rising speculation that the US might coordinate currency actions with Japan for the first time in 15 years.
• Rising Japanese bond yields and a weakening yen are creating a potential ripple effect for the US financial system. Speculation is mounting that Japanese pension funds and financial institutions may begin repatriating capital by offloading foreign bond holdings in favor of domestic assets. This large-scale reallocation would likely put upward pressure on US Treasury yields, prompting the US to seek alternative policy remedies to maintain market stability.
• The US support for intervention likely reflects the White House’s growing anxiety regarding long-term Treasury yields. Since taking office, the current administration has signaled its desire for lower rates, as they serve as the primary benchmark for domestic lending. Consequently, the prospect of Japan, the world’s largest foreign holder of US Treasurys, liquidating holdings to fund yen stabilization presents a systemic risk.
• While recent White House comments have been interpreted as a departure from the “Strong Dollar” policy, they actually signal a strategic move toward selective intervention. Its readiness to intervene, including adding potential support for the yen, proves that it is following a pragmatic, outcome-oriented approach. The key insight is that the administration now ranks Treasury yields above dollar dominance, which is why it is not concerned about the dollar’s decline.
• The administration’s apparent preference for a weaker dollar reinforces our conviction in broad portfolio diversification. While precious metals such as gold and silver have rallied significantly over the past few months, they continue to offer essential protection against currency debasement. Furthermore, we see a compelling case for increasing international equity exposure. A softer dollar has historically acted as a tailwind for foreign markets and has enhanced total returns for US-based investors.

New Fed Frontrunner: The race for the next Federal Reserve chair has been upended, with BlackRock’s Rick Rieder now the clear market favorite. Prediction markets like Polymarket now price Rieder’s probability near 50%, a surge propelled by endorsements from former frontrunner Kevin Hassett and the apparent favor of the president. With a final decision imminent, Rieder’s reputation as a pragmatic “bond king” is triumphing over the academic pedigrees of more traditional candidates.

• The momentum behind Rieder’s candidacy stems directly from the president’s deep-seated desire to reform the Federal Reserve. The president has persistently argued that the central bank lacks credibility due to perceived failures in fulfilling its dual mandate. To realign its priorities, he has championed a doctrine of closer policy coordination with the executive branch, with the overarching aim of prioritizing lower interest rates to drive economic expansion.
• The president’s search for a new Fed chair highlights the difficult balance between appointing a trusted agent of his agenda and a candidate deemed credible by the markets. For instance, the White House backed away from Kevin Hassett amid tepid Wall Street support and Senate confirmation risks. Concurrently, former Fed Governor Kevin Warsh’s prospects have faded as his history of hawkish policy positions undermines the credibility of any shift toward the president’s growth-focused, dovish priorities.
• While current Fed Governor Christopher Waller is still a leading contender for chair, his staunch loyalty to Fed orthodoxy may be his biggest liability. Waller has demonstrated intellectual independence following his advocacy of using JOLTS to guide rate decisions, which has paved the way for more accommodative policy. However, his refusal to join fellow governor and current CEA Chair Stephen Miran in pushing aggressive cuts may have signaled to the White House that he is too loyal to the “Fed system.”
• As a relative unknown, Rick Rieder’s lack of a defined policy record may be his greatest asset, making him difficult to pigeonhole. In a recent interview, he aligned himself with the current FOMC consensus, signaling support for two rate cuts this year. However, he also introduced a distinct policy nuance, arguing the Fed should take more active measures to support the housing market, which he views as a key constraint on affordability.

Silver Boom: A Chinese silver fund has suspended trading after its share premium soared beyond the value of its underlying assets. This halt coincides with a domestic frenzy for the metal, fueled by rising global prices and exacerbated by Chinese export restrictions that have pushed local prices above the global average. While the frenzy signals acute market stress, it does not yet point to broader systemic risk.

Gulf Allies Resist: Saudi Arabia has declined a US request to utilize its airspace for potential military action against Iran. The decision aligns with a similar recent refusal from the United Arab Emirates, underscoring a collective regional reluctance to support an offensive operation. This reluctance stems from profound concerns about the regional fallout of a destabilized Iran and from a clear desire to avoid being implicated in a strike, which substantially hinders US planning for military intervention.

North Korean Deterrent: North Korea has signaled its intent to expand its nuclear arsenal, a move widely interpreted as a defensive posture against potential US intervention. Following the removal of Maduro in Venezuela, Kim Jong Un appears to be prioritizing deterrence to secure his leadership. The escalation highlights a deepening deficit of trust, which could lead to a further destabilization of the global landscape.

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