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In a notable departure from trends after the Israel-US-Iran war broke out, the USD failed to capture haven flows last Friday (March 6) despite Brent crude oil prices surging above USD90/barrel amid the escalating conflict. Instead, stagflation risks and heightened political instability led US markets lower. The DXY Index dropped by 0.3% to 98.986. The S&P 500 Index plunged 1.3% to 6740, effectively taking out its two-month 6800 support level.
The negative surprise in February’s US nonfarm payrolls (-92k actual vs. +55k consensus) broke the resilient US labour market narrative that underpinned the Fed’s extended pause. While the futures market continued to project two Fed cuts this year, Trump-appointed Fed officials (Christoper Waller, Michelle Bowman, and Stephen Miran) pushed for 75-100 bps cuts to avoid over-restricting US monetary policy. In contrast, markets erased expectations of two Bank of England rate cuts and priced in two European Central Bank rate hikes this year, reviving a trade on monetary divergence against the greenback.
Following President Donald Trump’s firing of Homeland Security Secretary Kristi Noem on March 5, Attorney General Pam Bondi has emerged as another target for potential removal. House Democrats have announced plans to file articles of impeachment against Bondi, primarily focused on the Epstein case. Collectively, these upheavals signal a state of flux within the executive branch, eroding the predictable governance that underpins the USD’s haven status.
US fiscal concerns are resurfacing, weighing on the USD. On February 20, the US Supreme Court declared that President Trump lacked the authority to impose global tariffs under the International Emergency Economic Powers Act (IEEPA). Less than two weeks later, the Court of International Trade ordered the government to refund the tariffs, which the US Customs and Border Protection agency said will begin once the new processing system is ready next month. The Congressional Budget Office (CBO) estimated that the tariff termination would increase the projected deficits by USD2.0 trillion over the 2026–2036 period (fiscal years) than its previous baseline projections last month.
On March 8, Pentagon officials told Congress that the first week of Operation Epic Fury cost USD6 billion. Wary of voter fatigue over “forever wars,” especially ahead of the November midterms, US lawmakers are uneasy about a prolonged and sustained campaign that requires repeated supplemental defence appropriations. Hence, the USD could come under pressure if the narrative behind higher US Treasury yields shifts from inflation to fiscal sustainability concerns.
In summary, the convergence of disappointing US labour data, an increasingly fractured executive branch, and a deteriorating fiscal outlook has fundamentally challenged the USD’s traditional role as a crisis hedge.
Quote of the Day
“To know that we know what we know, and to know that we do not know what we do not know, that is true knowledge.”
Nicolaus Copernicus
March 9 in history
Nicolaus Copernicus record his first astronomical observation in 1497.
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