Marc Jones
4 min read
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By Marc Jones
LONDON (Reuters) -After U.S. President Donald Trump's radical campaign pledges, investors knew markets would get bumpy this year as he returned to lead the world's biggest economy. But almost nobody predicted the outcome so far, especially the dollar's dramatic fall.
Run through the year's numbers without tracking the journey and many key markets look serene.
World stocks are at record highs, benchmark global borrowing costs are down and so-called market "fear gauges" like the VIX barely look like they have moved.
But look closer and the turmoil is clear: all of those markets have seen extreme swings over the last six months - and then there's the dollar.
The world's reserve currency is down over 10%. That's its biggest first-half dive since the era of free-floating currencies began in the early 1970s, whereas gold is up 25% in its biggest rise since then, which marked the end of the bullion-linked Bretton Woods System.
Vincent Mortier, chief investment officer at Europe's largest asset manager Amundi, puts this down to Trump's trade war, and particularly to what the president calls his "Big Beautiful" fiscal bill that will keep the U.S. deficit at 6-7% and its $36.2-trillion debt pile ballooning.
"The big event of the first half for the market has been this U.S. weakness and this questioning of what should be the trajectory of the dollar," Mortier said, adding he expected the U.S. currency to keep dropping, albeit more slowly.
Also eye-catching have been the struggles of the "Magnificent Seven" tech giants. They have been a cash cow for portfolios for years, but have been left for dust so far this year by a 20% rally in Chinese rivals and a near 70% surge in European weapons makers.
The latter move has been driven by Trump too. His signal that the U.S. will scale back Europe's military protection is forcing the region - and other NATO members - to rearm.
Germany's historic plan to revamp its self-imposed debt brake to allow higher defence spending initially interested the $140 trillion global bond market, although long-term U.S. debt concerns and record-high Japanese borrowing costs have driven most moves since.
Given the dollar's woes, benchmark U.S. debt will have lost money this year for most who sit outside the country.
Highlighting the volatility, 30-year Treasury yields surged past 5.1% to their highest since 2007 in May, but are already back at 4.8%. Switzerland, meanwhile, took its interest rates back down to zero this month.
