- The fall of the US dollar seems part of the White House plan.
- is increasing due to capital inflows.
Donald Trump has added fuel to the fire of the falling US dollar. The president's words that the value of the dollar is “excellent” underlined that US officials are comfortable with the dollar falling, only reinforcing the slide to its lowest level since February 2022. This is causing the main currency pair to rally to 1.20, despite the expected growth of 5.4% in the US in the fourth quarter, and the country's unwillingness to cut rates until at least June, according to leading indicators of the Atlanta Federal Reserve.The White House stands firm. In Davos, Trump asked a rhetorical question: Why is the U.S. economy strong, default risk low, and interest rates higher than other countries? The United States pays 4.2% of its 10-year debt, while Japan pays 2.2% and China 1.8%. And this is a considerable amount on top of the $38 trillion debt, a staggering additional cost to the budget.
Donald Trump wants to reduce borrowing costs. The Federal Reserve's models show a direct link between a strong economy and the risks of accelerating inflation. However, fundamental analysis suggests that a strong economy cannot have a weak currency. The example of the US dollar shows that it can be done.
Will the Fed put a stop to the EURUSD bulls? Jerome Powell can do it with his tough rhetoric. However, if the central bank keeps the phrase about considering additional rate adjustments in the accompanying statement, this could, on the contrary, accelerate the fall of the dollar. Markets will perceive such a move as a sign of resistance to a prolonged pause in the monetary expansion cycle.
The collapse of the USD index allowed gold to surpass $5,300 an ounce for the first time in history. Precious metals act as a politically neutral asset. They react to White House policy, but are not dependent on it in the same way as stocks, bonds, and the US dollar. As a result, investors are increasing their gold holdings to hedge against political risks.
Gold gained support from both capital outflows from the US and capital outflows from the cryptocurrency market. Many believed that Donald Trump's promise to make the United States the crypto capital of the world would cause Bitcoin to break record after record. In fact, it has become an asset dependent on White House policy.
He FxPro Analyst team
