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New York, June 26 EST: The SPDR S&P 500 ETF Trust (SPY) inched up to $610.96 on Thursday—another incremental high in a market that’s increasingly betting the Federal Reserve will have its hand forced. It was a modest gain, $3.84 on the day, but one that lands with outsized weight given what’s happening in the currency markets.
This move came as the U.S. dollar tumbled to its lowest level in over three years, driven by a growing belief that interest rate cuts are no longer a matter of “if,” but “how soon,” and whether the central bank can do it on its own terms.
Dollar Is In Trouble, And Everyone Knows Why
The greenback isn’t just slipping—it’s getting dumped. The Dollar Index fell another 0.5% Thursday, capping a brutal stretch that’s erased more than 10% year-to-date, according to Reuters. That’s the worst first-half showing since the early ’70s.
Markets don’t need a translator. They’re reading political pressure on the Fed loud and clear.
President Trump’s latest comments—raising the possibility of replacing Fed Chair Jerome Powell early—have shaken what’s left of investor faith in the central bank’s independence. He’s accused Powell of “moving too slow,” and the timing of the remarks, right as inflation data softens, looks like more than just posturing.
Traders have reacted fast. As of Thursday, the odds of a July rate cut jumped to 25%, up from 12% a week ago. More tellingly, bond markets are now pricing in as much as 137 basis points of easing by early 2027, a shift that would have been unthinkable just two months ago.
Foreign exchange desks are reacting in kind. The euro is back above $1.17, sterling is flirting with $1.37, and the Swiss franc and yen are both seeing strong inflows. In short: money’s moving offshore.
Stocks Climb, But It’s Not Euphoria
Equities are rising, but this isn’t irrational exuberance. It’s more of a rebalancing—cash getting pulled from cash and moving into risk.
The S&P 500 climbed 0.66% to 6,132.52, while the Dow Jones and Nasdaq Composite both posted gains just shy of 0.75%. The SPY ETF tracked closely, trading between $608.33 and $611.12, with a solid close on volume north of 33 million shares.
This isn’t a breakout—it’s a migration. Investors see a Fed that may be handcuffed, a dollar that’s structurally weakening, and equities that still offer real upside in a softening rate environment.
A ceasefire in the Middle East added some lift, removing one tail-risk from the board. But no one’s calling this a bull market born of optimism. It’s strategy, not sentiment.
Risks Are Rising, Even As Markets Float Higher
Behind the curtain, tensions are building. The idea that the White House might install a “shadow chair” at the Fed has serious implications—not just for rates, but for institutional trust. Markets are forward-looking, but they’re not blind.
Bond yields are flashing those warnings. The 2-year Treasury is now hovering around 3.75%, well below recent highs. It’s a clear signal: investors believe rate cuts are not just coming—they’re being baked in.
The bigger question is whether those cuts come on the Fed’s timeline or because they’re being backed into a corner politically. That distinction matters.
What’s Ahead: Powell, Tariffs, and Control
Chair Jerome Powell is set to testify before Congress in early July. It may be one of the more consequential public appearances of his career. Markets will be watching for any sign of resistance—or resignation—to the political heat.
Also on deck: the July 9 global tariff deadline. If the U.S.–China talks break down or escalate, the dollar could take another hit, and stocks might not be so resilient.
And then there’s Trump. If he names a potential Powell replacement or even floats the idea of shared authority at the Fed, expect a market reaction. The dollar will almost certainly take another leg down. Yields could get choppy. And SPY, for all its stability today, might not be immune.
Bottom line: SPY is still climbing, but it’s climbing on thin air. The dollar’s collapse, the Fed’s credibility issues, and the mounting political noise are turning this into a market that’s not rallying on fundamentals—but reacting to fragility.
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