Weekly Market Update - Powell & How A Weaker US Dollar Impacts Your Portfolio

Last week, much of the focus was on President Trump’s comments targeting Federal Reserve Chair Jerome Powell. Trump's public declaration that he wanted Powell removed rattled markets, already sensitive to signs of political interference in monetary policy. Equities fell sharply, bond yields spiked, and the US dollar stumbled — all clear signals that investor confidence had been shaken.

Although Trump has previously stated that he doesn’t pay attention to market movements, his quick reactions to negative market signals suggest otherwise. His criticisms of Powell were seen as undermining the Fed’s independence — a foundational principle for credible economic policy. Investors around the world took note.

However, by Tuesday, the tone shifted dramatically.  As always with the Trump, he moves quickly. Trump assured reporters that he had no plans to remove Powell. This reversal helped markets stabilize, with equities rallying on relief that the Fed’s autonomy remained intact. It was a clear example of how quickly sentiment can swing when institutional credibility is reaffirmed.

This episode also highlights the growing tension between political leadership and economic stewardship. Scott Bessent, recently appointed as Secretary of the Treasury, brings a more overtly political approach to economic policy, aligning closely with the administration’s goals. In contrast, Jerome Powell continues to prioritize long-term economic stability, even at the cost of short-term political popularity.

Powell’s commitment to maintaining higher interest rates reflects a strategic decision: prioritizing sustainable growth over quick fixes. In an environment where inflation remains a threat, maintaining discipline is critical. His stance sends a clear message that the Fed will not be swayed by political pressure — a reassuring sign for investors looking beyond the next news cycle.

Despite the week’s political drama, market performance was encouraging.

The S&P 500 gained 4.6% over the week, rebounding from prior losses but still down 6.1% for the year. European equities outperformed even more impressively, with the Euro Stoxx 50 climbing 4.4% and now sitting up nearly 12% year-to-date. Meanwhile, the FTSE 100 posted a 1.7% gain for the week, building a year-to-date return of approximately 8.72%.

These numbers reinforce an important lesson: Different regions experience different cycles. Even when global headlines dominate, regional markets can chart their own paths. This year’s significant outperformance of European stocks relative to US equities underlines why diversification remains critical.

At Hoxton Wealth, global diversification is a core principle of our investment approach.

Over the past decade, US markets have often dominated returns, leading some investors to question the need for international exposure. But no single market — even one as dynamic as the US — outperforms indefinitely. Economic cycles, currency movements, regulatory shifts, and demographic trends all influence regional performance.

This year’s divergence between the S&P 500 and the Euro Stoxx 50 — an almost 18% swing — is a clear example.

European companies, particularly in sectors like industrials and luxury goods, have benefited from resilient global demand, while US companies have faced headwinds from interest rate pressures and political uncertainty.

A globally diversified portfolio smooths returns, manages risks more effectively, and positions investors to benefit from opportunities wherever they arise.

It’s not about abandoning faith in US markets — it’s about building a resilient portfolio that can thrive in a range of economic environments.

Global diversification also provides important protection against currency risk, sector concentration, and regional shocks.

As we’ve seen time and again, unexpected events — political upheaval, trade disputes, regulatory changes — can impact one region more than others. By spreading investments globally, we reduce reliance on any single economy or policy decision.

In an increasingly interconnected world, opportunity knows no borders.

Having access to innovation in Europe, growth in emerging markets, stability in developed economies, and leadership in US technology ensures that client portfolios are well-positioned for whatever lies ahead.

Trade tensions between the US and China have remained a central theme in global markets.

While Trump’s administration has maintained a hard line on tariffs, there are signs that both sides are moving, albeit cautiously, toward negotiation.

Last week saw a pause in additional tariffs, and China signalled openness by exempting certain US goods — including aerospace equipment and microchips — from tariff lists.

While rhetoric from both sides remains conflicting — Trump speaking optimistically about progress, Chinese officials taking a more reserved stance — the mere possibility of renewed dialogue helped buoy market sentiment.

However, we remain in a period of elevated uncertainty.

Markets are sensitive to even small shifts in tone or policy, and final agreements remain elusive.

The 90-day negotiating window, ticking down to July 8th, 2025, will be critical. Until then, investors should expect ongoing market sensitivity to any trade-related headlines.

Uncertainty tends to delay business investment, weaken consumer confidence, and create headwinds for economic growth.

Reducing that uncertainty — even incrementally — supports investment and market stability.

Meanwhile, currency movements are providing another layer of complexity.

The US dollar has weakened significantly, losing more than 9% of its value against a basket of major currencies. This is a substantial shift in a relatively short period, especially given earlier expectations for dollar strength.

A weaker dollar has multiple effects:

• It makes US exports more competitive, potentially reducing the trade deficit over time.
• It raises the cost of imported goods, contributing to inflationary pressures at home.
• It affects the value of international investments, depending on an investor’s home currency.

For investors with US dollar-denominated assets but measuring returns in GBP or euros, currency shifts can either amplify or diminish gains.

That’s why, at Hoxton Wealth, we made the decision in 2020 to hedge currency exposure for non-USD portfolios.

Hedging removes currency volatility as a risk factor, ensuring that investment returns reflect the performance of the underlying assets — not the unpredictable swings of foreign exchange markets.

While currency hedging sometimes attracts criticism for dampening upside during strong dollar periods, it provides critical protection during periods like today — when the dollar weakens sharply.

The goal is simple: allow investment performance, not currency noise, to drive client outcomes.

It's important to remember that currency cycles are long and often unpredictable.

Trying to "time" currency markets is not going to happen. A disciplined, consistent approach to managing currency risk supports long-term portfolio stability and helps clients achieve their investment goals with greater certainty.

With so much happening in markets, politics, and global economics, it’s easy to become overwhelmed.

But history teaches us a vital lesson: staying invested, maintaining diversification, and thinking long-term remains the most reliable path to building wealth.

Markets have always faced periods of volatility — wars, political crises, financial panics, policy shifts.

Yet over the long arc of time, markets have adapted, recovered, and grown. Investors who stayed disciplined, avoided emotional reactions, and stuck to well-constructed portfolios have consistently come out ahead.

Today’s uncertainties — whether related to trade policy, interest rates, or political pressures — are no different.

They are part of the investing journey, not an interruption of it.

At Hoxton Wealth, our role is to help clients stay focused on the bigger picture. We design portfolios to weather storms, capture opportunities across markets and sectors, and deliver outcomes aligned with long-term financial goals. We engage constantly with fund managers, analysts, and economic research to ensure that strategies evolve appropriately — but always anchored in disciplined, evidence-based investing.

For clients, the key is to avoid reacting to headlines emotionally.

Adjustments to portfolios should be thoughtful, not knee-jerk. Patience, discipline, and diversification remain the most powerful tools available to investors.