Michael, the thing is, it is not clear to me that absent actual policy changes by the nations involved, they will be able to adjust the dollar lower. certainly the ECB and BOE and PBOC cannot raise interest rates, and it appears that the Fed will have a tough time cutting them, at least for now. so while they may talk a big game, unless the talk includes clear actions to intervene regularly (which I seem to doubt based on history, especially in the US) it is not clear to me what can break this link.
Now, if Powell does cut soon, especially with inflation still hot, then the dollar will certainly fall, while hard assets will rally. but I find it hard to believe that is the next move
There are many ways to give the world USD liquidity. Interest rates is one of them. If you read my piece on "The Chronicle of an Upcoming USD Squeeze" you will see that the huge USD deficit is putting tremendous amount of pressure to other currencies. One way to give liquidity (although I am not sure the US would use this nuclear weapon) is to give out swap lines. Not all countries have one.
I guess the question is, if the Fed offers more swap lines, will that undermine the dollar? It strikes me that the dollar strength is a consequence of the dramatically large amount of fiscal stimulus supporting the US economy than anywhere else in the world. and until investors penalize the US for over borrowing, drive rates higher and force a recession, I just don't see a reason for the dollar to fall. Now, if the Fed were to cut, as I said, that is a very different story.
Michael, the thing is, it is not clear to me that absent actual policy changes by the nations involved, they will be able to adjust the dollar lower. certainly the ECB and BOE and PBOC cannot raise interest rates, and it appears that the Fed will have a tough time cutting them, at least for now. so while they may talk a big game, unless the talk includes clear actions to intervene regularly (which I seem to doubt based on history, especially in the US) it is not clear to me what can break this link.
Now, if Powell does cut soon, especially with inflation still hot, then the dollar will certainly fall, while hard assets will rally. but I find it hard to believe that is the next move
There are many ways to give the world USD liquidity. Interest rates is one of them. If you read my piece on "The Chronicle of an Upcoming USD Squeeze" you will see that the huge USD deficit is putting tremendous amount of pressure to other currencies. One way to give liquidity (although I am not sure the US would use this nuclear weapon) is to give out swap lines. Not all countries have one.
I guess the question is, if the Fed offers more swap lines, will that undermine the dollar? It strikes me that the dollar strength is a consequence of the dramatically large amount of fiscal stimulus supporting the US economy than anywhere else in the world. and until investors penalize the US for over borrowing, drive rates higher and force a recession, I just don't see a reason for the dollar to fall. Now, if the Fed were to cut, as I said, that is a very different story.
I address all this in my piece