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| Downfall of US Dollar? |
Figure: The latest U.S. retail sales were weaker than expected, further confirming that high interest rates hit consumption and affect economic growth momentum.
The speed of global de-dollarization is faster than market expectations, and countries have reduced their holdings of U.S. debt. In May this year, global central banks including Japan, China, and the United Kingdom sold more than US$50 billion of US bonds. In the past one and a half years, foreign investors have sold a total of about US$400 billion of US bonds. This is the reason for the continuous decline in US bond prices in recent years. As the U.S. dollar weakens, the valuation of U.S. dollar assets will be further reduced. The decline in U.S. debt has formed a long-term trend, and investors should avoid it.
The U.S. dollar index, which reflects the U.S. dollar against major currencies, has not seen much rebound momentum after falling below the 100-point mark last week. It continues to hover at the 99 level, which shows that the bearish sentiment in the market is still high. The latest U.S. retail sales data was worse than expected, further confirming that high interest rates have hit consumption, and economic growth momentum is weak. It is believed that more funds will flee from U.S. debt and U.S. stocks, and the rebound of the dollar will be weak.
Confidence In U.S. Bond Non-safe Asset Investment Falls
In fact, the sharp rise in U.S. interest rates last year has made U.S. debt vulnerable, and the short-term selling pressure is hard to dissipate. First of all, the U.S government has not been able to stabilize the interest rates. There is no suspense that the Federal Reserve will raise interest rates by 0.25% next week. There is still a chance to raise interest rates in September.
Secondly, the impact of high interest rates on the U.S. economy has not yet fully surfaced. In addition to commercial real estate explosions at any time, corporate debt default storms may also be imminent. The probability of a financial crisis is not low, which will further affect investment confidence in U.S. debt.
U.S. Currency Weakens, U.S. Debt Sells More And More
Third, the US debt risk is high. The U.S. is the world’s largest debtor country, but it has weaponized finance at every turn. The number of countries pulling away from the the U.S. dollar in different ways is going up, including using currencies other than the U.S. dollar for settlement, reducing their holdings of U.S. debt, and shipping gold and other assets stored in the U.S. back to their home countries.
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| US dollar on a decline. |
It can be seen from the above that the pace of global de-dollarization is faster than market expectations, and the status of the US dollar as an international reserve and payment currency is declining at an unprecedented rate. For example, the US dollar’s share of global payments has dropped from 42.6% in May this year to 42.02% in June this year, while the share of US dollars in global foreign exchange reserves has dropped sharply from 71% in 2001 to 58% by the end of 2022.
It is worth noting that Japan and China reduced their holdings of U.S. debt by more than US$30 billion and US$22 billion respectively in May this year. Among them, China’s total holdings of U.S. debt fell to more than US$840 billion, a 13-year low, further dampening the sentiment for investment in U.S. debt.
Daxing Joins In Singing Air Worries And Bursting Into New Crisis
The large U.S. creditors have unanimously reduced their holdings of U.S. debt, which is enlightening. It reflects that U.S. debt is no longer a safe haven asset, especially because the U.S. economy and finance are unstable. Big Wall Street firms have also joined the ranks of shorting U.S. debt and the U.S. dollar. JPMorgan believes that the market is ignoring the decline in the U.S. dollar’s status as the preferred currency for international reserves and trade, and recommends reducing its holdings of U.S. dollars, financial stocks and long-term bonds.
Plagued by high interest rates and high inflation, the U.S. economy and financial crisis are pervasive, and black swan events may occur at any time, triggering a new wave of financial turmoil. Investors should avoid U.S. debt and other assets.
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