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Your summary with links, if you’d like to curate your content:
The January 28 FOMC kept rates unchanged with no new guidance, projections, or balance sheet tweaks; Powell stayed non-committal on politics, described policy as loosely neutral post-cuts, emphasised elevated inflation despite strong jobs, and defended Fed independence amid hawkish pause signals, though markets priced in some dovishness.
Powell avoided currency comments, but Treasury’s Bessent denied intervention; DXY eased to pandemic lows near the 100 tipping point, boosted by Trump’s “yo-yo” analogy greenlighting weakness that aids exports but risks inflation; historical views show it reverting to long-term averages amid US debt concerns eroding reserve status.
While we we all speculating on the next Fed pick – Christopher Waller dissented for a 25bp cut, boosting his succession odds on prediction markets behind Kevin Warsh and Rick Rieder, Trump announced Kevin Warsh. Powell may retain his governor seat until 2028, complicating a Trump appointee’s role in a committee resistant to dovish shifts.
The 12-member FOMC votes on dual mandate data—PCE inflation, labour metrics, GDP, financial conditions—via staff forecasts, debates, and scenarios, prioritising if policy is restrictive enough for 2% inflation without economic breakage; no formula, just majority judgment favouring caution post-1970s errors.
Big Tech earnings mixed: Meta beat on ads with AI capex ramp-up, shares +10%; Microsoft punished for cloud slowdown despite 60% capex surge to $37.5B, losing $357B market cap; Tesla deliveries fell 9-16% but profits beat; investors demand monetisation proof amid rotation from tech.
Trump’s “yo-yo” dollar analogy accelerated DXY drop to 2022 lows, spurring metals rallies; weak USD boosts exports but stokes inflation (14% US imports), contrasting RSA’s higher sensitivity; yen ructions and China gold buying via warrants amplify moves.
China’s marginal buying via Shanghai warrants (record inventories) drives gold above $4,900 despite stable rates; CIPS growth evades SWIFT scrutiny, diverging BTC as PBOC injects liquidity into debt-laden system; uses: jewelry 44.6%, investment 32.3%, central banks 23.5%.
UnitedHealth forecast first revenue contraction in decades (<$439B for 2026) amid flat Medicare payments, CEO slaying fallout, and CMS proposal, plunging shares 20% ($64B loss); sector underperforms on political risks despite Trump hopes.
JGB yield surge and yen revival signal deflation end or crisis, with rice inflation alarming public; can’t have low yields and strong yen simultaneously—weak yen preferred; ends cheap yen carry trades impacting global funding.
EU squeezed by Russia, China, US; past dependencies backfire—needs self-help (Draghi reforms, arms buys), diversification (India/Mercosur deals), deterrence/dialogue with Trump (e.g., Greenland climbdown); rearmament demands welfare cuts for survival.
DXY down 15% since 2022 peak (-2.9% post-Jan 19), within long-term average but weakest since then; post-GFC weakness echoed now by debt/geopolitics eroding exceptionalism; cheap USD aids exports but mutes constant-currency gains, risks reserve status loss without Plaza-like cooperation.
This Week’s Roundup
US
South Africa
Global
FOMC, Powell and the FED (Yes, again)
It’s supposedly an ancient Chinese curse to “live in interesting times”.
The phrase likely originated in Britain during the late 19th or early 20th century, tracing back to speeches by Joseph Chamberlain around 1898, who described his era as one of great insecurity. His son, Austen Chamberlain, referenced it in 1936 as a supposed Chinese curse learned from diplomats, popularising the idea further; it gained traction in the West through figures like Robert F. Kennedy in a 1966 speech. In fact, there is no such Chinese saying… but some are close.
Central bankers have certainly learned that of late, as the Federal Reserve and its governance have grown into a hot-button political issue. Generally, they want to keep things dull and predictable to minimise the risk of financial accidents. On that basis, Jerome Powell is probably happy with his day’s work last Wednesday. In the midst of the greatest turmoil for the institution in decades, he and his colleagues on the Federal Open Market Committee conjured a truly uninteresting announcement on monetary policy.
Rates are unchanged.
When Powell faced the press, he declined to answer a series of questions on the political issues at the top of everyone’s minds.
Bottom line, the FOMC is more hawkish (pausing) than dovish (dropping).
Powell left all options open, but his persistence in describing inflation as elevated, while sounding surprisingly confident about the employment market, marks him as tending slightly in the hawkish direction. As gold rose, while the dollar and 10-year yields fell in the late afternoon, the market didn’t necessarily interpret him that way. He is wise to be non-committal as the tail risks in both directions are clear, and everyone can see them.
Anecdotal evidence of big layoffs from companies as important as Amazon.com Inc. points to a more troubled labour market than the official data suggests.
Despite this, Powell describes policy at present as “loosely neutral.” He thinks the cuts of the last three meetings have probably done the job. With the markets braced for a big fiscal boost and surging corporate profits, which might bring the risk of overheating, that’s a reasonable position.
The Dollar
It was predictable that Powell, in his FOMC, would refuse to address the drama in the currency. It was less foreseeable that Scott Bessent, responsible for the dollar as Treasury secretary, would take as strong a line as he did.
It was boilerplate to insist on CNBC that Washington “always has a strong dollar policy,” but his emphatic denial that the US was “absolutely not” intervening to help the yen struck against a key reason for the recent run on the dollar. Over the last year, Bessent has disappointingly turned into a Trump mouthpiece and not the voice of education and reason we had hoped for this time last year. The dollar is now easing down to pandemic levels (which was a black swan event), but sailing down to that 2005-2025 decade. 100 is considered the tipping point between ‘weak’ or ‘strong dollar’.
Graph : The DXY Index
The next FED chair – who’s betting? Trump floated Kevin Warsh as his pick on Friday.
Warsh is a former Fed governor and was considered for chair during Trump’s first term. He has been an outspoken Fed critic and is expected to support lower interest rates in the near term.
The appointment comes amid mounting worries about the Fed’s independence, following Trump’s increasing attacks on Powell in recent months. Critics have questioned whether it is the fact that Warsh’s father-in-law, Ronald Lauder (of Estee Lauder pedigree), is a Trump donor and friend that got him the job.
Christopher Waller joined recent Trump appointee Stephen Miran in arguing for a 25-basis-point cut.
Waller is a candidate to succeed Powell as chairman, who dissented in favour of cutting last summer, but subsequently went along with the majority in a move seen at the time as denting his chances of the top job. Wednesday’s dissent has been interpreted on prediction markets as re-injecting him into the mix, although he still lags former governor Kevin Warsh and BlackRock executive Rick Rieder in the betting.
How does the FOMC set the rate?
FOMC does not use a magic formula or a crystal ball. It votes, based on a stack of data and a very human judgment call.
They start with the dual mandate (their North Star)
The Fed is legally tasked with only two big goals:
Every rate decision is basically a tug of war between:
“Is inflation still too hot?” and “Are we about to hurt jobs and growth?”
If inflation is winning, rates stay higher.
If growth and jobs start losing badly, cuts come back onto the table.
They look at a very specific set of data, not vibes
The core inputs are:
One bad inflation number does not move rates. A pattern does.
They rely heavily on staff forecasts and scenarios
Before each meeting, Fed economists produce:
So when Powell says “we are data dependent”, what he really means is: “We have already run 20 models and we are choosing which one we believe today.”
The meeting itself is a debate, then a vote
The FOMC has:
They discuss:
Then they vote.
No consensus model is required. Just a majority.
Yes, it really is that old school.
5. The single most important question they ask
Not “what is inflation today?”
But:
Is current policy restrictive enough to bring future inflation down without breaking the economy?
That is why cuts usually come late.
They are terrified of repeating the 1970s mistake of easing too soon and having inflation roar back.
Blunt truth:
The Fed would rather tolerate slower growth and political heat than lose credibility on inflation.
Why markets often get it wrong
Watch this space, but remember that the rate is not set by the chair, but by the 12 person committee (above), and there is speculation that Powell will hang onto his committee seat when he steps down as Chair. The Trump-appointed chair will be in the invidious position of having to spin potential pauses to the Donald. Poison chalice. As discussed above, the Fed’s 12 regional presidents provide five votes on the FOMC, with a new slate of five taking over each calendar year. We now have a clear sign that these five are happy to go along with Powell for now, and don’t feel the need to make a statement with a dissent. This isn’t a surprise, but it tends to confirm that moving the entire committee in a more dovish direction, an unabashed administration aim, will be very difficult. The chance of a big shift in Fed policy this year is, at the margin, further reduced.
Powell’s comments on Fed independence went like this:
“The point of independence is not to protect policymakers or anything like that, it just is that every advanced democracy in the world has come around to this common practice. It’s an institutional arrangement that has served the people well, and that is to not have direct elected official control over the setting of monetary policy. And the reason is that monetary policy can be used through an election cycle to affect the economy in a way that will be politically worthwhile.”
Make no mistake, Powell led the Fed into a serious error in 2021, continuing to prime the economy with cheap money when inflation was taking off, but he has executed a surprisingly good save in the years since. Jerome Powell is a member (Governor) of the Board of Governors of the Federal Reserve System, the central governing body of the U.S. Federal Reserve that oversees monetary policy, bank regulation, and financial stability. That post only ends in 2028. Recent trump threats might just push him to stay on.
Investors are scouring the latest round of Big Tech earnings for validation of the vast investments in AI of the past few years. They have a familiar verdict. Results matter more than promises.
We’re well into earnings season, and Meta Platforms Inc.’s shares jumped about 10% in after-hours trading last week, driven more by its solid earnings beat than its commitment to ramp up already stupendous AI spending still further. The social media giant reported fourth-quarter sales of $59.9 billion, ahead of Wall Street’s $58.4 billion consensus, buoyed by the strength of its advertising business and forecasting that first-quarter sales would be between $53.5 billion and $56.5 billion, above the average estimate of $51.3 billion.
Microsoft Corp., by contrast, was punished for a slowdown in cloud computing growth, with shares sliding nearly 5% on the day it released results. Capex surged more than 60% from a year earlier to $37.5 billion, ahead of analysts’ estimates for about $36 billion — but that’s unappealing if the company isn’t delivering on the bottom line. Microsoft’s post-earnings stock reaction was the most severe in nearly 13 years, highlighting investor impatience with the company’s artificial-intelligence spending relative to its ability to monetise AI. It went on to lose 10% in Thursday’s session, making for its steepest post-earnings drop since July 19, 2013, when it fell 11.4%, and its worst one-day decline for any sort of session since March 16, 2020, when it slid 14.7%, according to Dow Jones Market Data.
The plunge wiped out $357 billion in Microsoft’s market capitalisation. Only Nvidia has lost more market cap in a single day — the $593 billion that got erased on Jan. 27, 2025 in the wake of DeepSeek fears.
The message from markets is straightforward: Investors will tolerate rising capex, but only when there is tangible evidence that earlier bets are paying off in a meaningful way.
The reaction to Tesla, which also reported, was less dramatic. Elon Musk’s flagship company earlier this month said that deliveries dropped 9% last year compared to 2024. That slump sharpened in the fourth quarter, when they dropped 16%. Still, the company’s profit exceeded expectations, snapping a string of quarters in which it missed.
So far, almost half of the Bloomberg Magnificent Seven have reported, with results that roughly cancel each other out. The broader question is whether AI can muster enough firepower to halt the rotation away from the tech behemoths that has gathered pace since they last reported. The rotation is clear from the divergence between the Nasdaq 100 and Russell 2000 (small caps) in the last two months:
For any Dire Straits fans out there, you are probably familiar with the line “Look at them yo-yos, that’s the way you do it”, (and Money for nothin’ and your chicks for free, of course)
Yo-yos were great fun (showing my age here – anyone else remember the schoolyard ‘crazes’ – yoyos, ding bats, nyabs, elastic skipping), but are probably used more in analogy than in real life anymore.
They go down and then go up — until the moment when the intrepid user loses concentration, gets the timing just wrong, and the yo-yo comes to rest at the bottom of its string. That appears to have happened to the dollar last Tuesday after President Donald Trump offered the yo-yo as an analogy for setting the exchange rate of the world’s reserve currency.
“I could have it go up or go down like a yo-yo,” he said. “I want it to be — just seek its own level, which is the fair thing to do.” Asked if he was worried by the dollar’s sharp fall, he said: “No, I think it’s great. I think the value of the dollar — look at the business we’re doing. The dollar’s doing great.”
A ding bat analogy is probably more apt here…
Those words, coming at a point when the currency had already sketched out a first yo downward trend, created another down yo. The effect was most dramatic for the broader dollar, but it also galvanised both precious and industrial metals, which have been on their own related run. Just when we thought that markets were desensitised to the Donald’s ramblings, this is what we saw last Tuesday:
Basically, whether or not it was intentional, Trump gave traders a green light to take the dollar through the next key levels, which they promptly did. As gold set an all-time high, Bloomberg’s DXY dollar index dropped to its lowest since early 2022, just before the Federal Reserve sparked a dollar revival by hiking rates.
Read Cobie’s interesting take on the dollar below
This has major economic ramifications. A weak dollar makes US exports more competitive, and imports more expensive — a key Trump 2.0 aim and a reason why he has advocated for a weaker dollar in the past.
The problem is inflation.
While US CPI isn’t as sensitive to import prices as in smaller economies (only around 14% of goods consumed in the US are imported – ours in RSA is 30%), it makes the Fed’s job harder, but that is going to fall into the lap of the new Trumpy-FOMC Chair. Ag, shame.
The ructions in the Japanese yen have also fed primarily into the dollar’s weakness, critically, due to the surging gold price.
Gold rally – made in China? An interesting opinion
The dollar weakness is notable but not enough to drive gold that high, and rates/inflation are stable. Gold is going up because China is buying, and the same goes for silver.
In the last two years, China has become the world’s marginal buyer of gold, and therefore the price setter. Chinese appetite for gold is local, and Shanghai’s alternative to the SWIFT payment network, known as CIPS, is growing fast and is now used by 30 countries. CIPS is the backdrop to “the Shanghai gold hoard,” while each Chinese warrant is a claim on physical gold in one of the hoards.
The surge in the gold price has overlapped with a massive increase in holdings of these warrants.
Why is CIPS driving the market? Basically, “American behaviour is chasing market agents away from the SWIFT system.” They go to Shanghai and use Chinese gold warrants as a vehicle instead. Advantages that include no futures contracts, tokens, or security with the exchange, and that it’s not visible to geopolitical Western prying eyes.
This has also had a fascinating impact on Bitcoin, an asset that should directly profit, like gold, from any loss of confidence in the dollar. That hasn’t happened, and gold and Bitcoin have diverged.
The US is in a classic late cycle, with the Fed already on pause while China still has no option but to pump liquidity into the system: In the past year, the PBOC (People’s Bank of China) has injected around US$1.1 trillion into Chinese money markets: China may be forced to inject a similar amount this year in order to begin to address her overwhelming debt burden. In short, China’s sky-high debt/liquidity needs to fall.
In the US, liquidity finds its way to risk assets, like the S&P 500 and particularly Bitcoin. In China’s much less-developed financial system, it heads for gold.
Shanghai gold warrants are electronic certificates issued by the Shanghai Futures Exchange (SHFE) delivery warehouses, representing ownership of standardised physical gold ingots (typically 3,000 grams fine weight) stored in approved vaults. They enable delivery settlement for gold futures contracts, with owners confirming them via the exchange’s system after load-in verification, allowing tolerance adjustments for weight variances and facilitating trading, storage fee payments, and load-out processes. These warrants have gained attention recently due to record-high inventories, like 86,565 kg in late 2025, signalling strong physical gold demand in China amid market surges. Last year, there was about 3,6m kg of gold produced worldwide, so still a minuscule 2,3%, but enough to move markets it seems.
If you’re interested in where all the gold goes:
Jewellery 44.6%, Investment 32.3% , Central Banks 23.5%,
Technology 8.2%
The net result has been dollar devaluation and gold hoarding. This is one of the downsides to having commodities, not just gold, traded in USD. It’s inflationary.
The difference this time is that the system of Shanghai gold warrants and the chance to settle on the blockchain allows prices to move in seconds, not weeks or months or years.
The blizzard that engulfed the US last weekend may have passed, but at UnitedHealth Group’s Minnesota headquarters, the storm is far from over. This share has been on our radar for our offshore portfolios for a while, but it has been an ‘interesting’ ride. Late last Monday, a White House proposal to hold payments to private Medicare plans flat next year sent the company’s stock plunging in after-hours trading.
Hours later, the company forecasted revenue would fall this year in the first annual contraction for more than three decades. Overall, UnitedHealth’s revenue for 2026 will be greater than $439 billion, representing a 2% decline from 2025 and short of analyst estimates. It’s another blow to efforts to investor confidence after the tumultuous year that followed the slaying of its chief executive, Brian Thompson.
The stock was sent plunging by almost 20%. That cut more than $64 billion off UnitedHealth’s market cap.
The pain spread across managed care stocks as the proposal from the Centers for Medicare and Medicaid Services (CMS) deflated investors’ anticipation of a 6% increase in payments next year. CVS Health Corp. and Elevance Health Inc. fell more than 10%. The sector continued a three-year pattern of massively underperforming the index.
This was only the latest blow to investors who had been betting on a rebound and demonstrated the depth of political risks when investing in health care. Markets had previously anticipated that Trump 2.0 would be more favourable for health insurers with private Medicare plans… we all know how that panned out.
A run on Japanese government bonds that reached a crescendo last week is now beginning to cascade throughout the rest of the world. Its effects show up, arguably, in the continued spectacular trading in precious metals and in renewed weakness for the dollar.
The question that most outside Tokyo want to answer is whether the surge in Japanese yields, followed now by a sharp revival of the yen, spells personal trouble for them. Inside Japan, the more important question is whether the profound shifts in markets are driven by a true crisis or by a normalisation after the decades-long deflationary slump. And for the moment, both questions depend on how the country will intervene to prop up the currency, and whether that will be successful.
Healthily, this might be because Japan’s economy has normalised. It is growing like others are, with the risk of inflation, and so yields also need to normalise higher. Unhealthily, it might be a response to fears that the government is borrowing too much and will be unable to pay its debts (an attack of the “bond vigilantes”). Or it might signal an alarm about inflation. Or, imply fear that the Bank of Japan is about to grow far more hawkish.
Inflation forecasts generated by the bond market suggest that traders are now assuming that Japan’s endemic deflation is over. Projected five-year inflation is almost identical to the US, and has been for some months.
This implies that yields might move higher if inflation takes hold, and that becomes complicated because Japan’s inflation is hard to read. Traditionally, the country defines core inflation excluding fuel and fresh food — but not all food, as in most developed economies.
That definitional difference grows very significant when the staple, rice, undergoes an epic price spike:
The population is thoroughly alarmed by inflation now.
Hawks fear that expectations are nudging permanently higher; doves suspect that the scare is simply a byproduct of a bad rice harvest. The data over the coming months should help settle that discussion.
Ultimately, Japan can have lower bond yields or a stronger currency, but not both. Allowing a weaker yen remains the least evil.
Japan matters to financiers elsewhere because they’re used to having it as a source of cheap funding. The carry trade of borrowing in yen and parking in a higher-yielding currency is damaged both by a strengthening yen and higher JGB yields.
Poor Europe. That continent embodied the loftiest visions of peace and integration in the post-Cold War period. It has become the poster child for weakness in the rougher age that followed.
Today, the European Union is being squeezed by Russia, China and the US simultaneously. There are hints of a strategy that might allow Europe to navigate this era. The alternative is becoming one of its victims.
The EU finds itself here mostly because of its own choices and failures. A continent that believed it had transcended the hard truths of geopolitics internally too often assumed it could transcend them externally, as well. By the 2010s, Europe had become — as the saying went — dependent on Russia for energy, on China for prosperity and on America for security. All three of those bills have now come due. Europe is perhaps the poster child of the result of being run by committee.
Russia began by slicing away at countries on Europe’s eastern borderlands and using its energy leverage to weaken the continent’s response. Now Russian leader Vladimir Putin is simply trying to batter down Europe’s Ukrainian doorway, while harassing the entire region with sabotage, drone incursions and other hybrid attacks. The worst may not be over: Leaders in Germany, the Baltic region and elsewhere believe that an angry, hyper-revisionist Russia may test Europe violently before this decade is out.
Many European leaders once saw Chinese demand as an engine of EU prosperity. Some even viewed Beijing as a potential partner in a multipolar world. For years, however, Chinese overcapacity and economic predation have threatened to gradually deindustrialise Europe. President Xi Jinping’s Belt and Road Initiative aims to make the region a dependency within a Chinese-dominated supercontinent. China fuels violent European instability by abetting Putin’s onslaught in Ukraine.
In President Donald Trump’s first term, Europe’s primary fear was American abandonment. In his second term, the fear is that Chinese and Russian pressure will now be accentuated by sharper US hostility.
To be fair, Trump’s demand for higher European defence spending is meant, in part, to make Europe stronger. It reflects a sense that America’s North Atlantic Treaty Organisation (NATO) allies must take themselves seriously before other major powers will.
The problem is that Trump also despises weakness, so he has coerced European countries, first by negotiating a highly asymmetric trade deal and then by demanding the continent hand over Greenland at Denmark’s expense. The resulting cross-pressures are severe. Europe needs greater strength to resist Trump’s more outrageous demands, but it also needs greater stability in its relationship with Washington to meet challenges from Moscow and Beijing. Recent events showed this dilemma in sharp relief, as Trump escalated his demands for Greenland. They also suggested the contours of a European response.
First, self-help. European military investments are surging. Key countries, not least Denmark and Germany, are buying more arms from European suppliers and fewer from the US. The economic component of self-help would involve implementing the competitiveness reforms laid out in 2024 by former European Central Bank head Mario Draghi. Strengthening the European power base will be the price of continued partnership with Trump’s America — and a prerequisite for survival if that partnership breaks down.
Second, diversification. The EU recently reached long-awaited trade deals with India and the Latin American trade bloc Mercosur. It is pursuing a pact with members of the Comprehensive and Progressive Trans-Pacific Partnership. In the near term, none of this will dramatically slash Europe’s trade dependence on the US or China. Over the longer term, these initiatives can improve Europe’s optionality and increase its resilience to pressure from any source.
Third, deterrence and dialogue with Trump. Trump’s climbdown on Greenland followed threats of serious European economic countermeasures. It showed that a willingness to impose real costs might disabuse Trump of the notion that the NATO allies can easily be pushed around. Yet deterrence worked because key European interlocutors, such as NATO Secretary General Mark Rutte, quietly provided pathways to addressing valid concerns about Arctic security. This allowed Trump to declare victory and retreat.
Such a strategy won’t restore the pre-Trump status quo, and that’s a good thing. The goal, rather, must be to create a new foundation of stability in the relationship — a situation in which a more assertive Europe assumes greater responsibility even as the transatlantic tie endures. That’s the best way of summoning the collective strength the democratic world will need to contain multiple autocratic rivals simultaneously, while also preserving the possibility of — eventually — greater transatlantic economic cooperation against Beijing.
European rearmament, even with the context of a more balanced NATO, will require major outlays and unpopular reform of over-generous welfare states. “Europe” remains as much an idea as a reality.
Putin will continue to try to split and intimidate Europe. Trump, whose good ideas compete with his bad ones, may well demand greater European autonomy while also punishing countries that show greater independence from the US. Yet if Europe can’t find its footing, a continent once composed of empires will become a plaything of them. That outcome will only bring more pain and humiliation for Europe. Given the number and severity of the tests the free world faces, it won’t ultimately be good for America, either.
Very interesting article by Paul Krugman on Europe
Author: Dawn Ridler
The Dollar has been weakening since 2022 (-15%), with this gaining some serious momentum from the 19th of January as the Dollar weaken by -2.9% against a basket of international currencies as measured by the DXY. This is not going to make an immediate difference to the average American. It’s only in time that they realise that their Dollar is buying less than it did before. By then working harder is not going to help replace one’s buying power. A long-term view of the Dollar is quite telling:
The Dollar, from a historical perspective, is actually within its long-term 1 Standard deviation band and has only now attained its long-term average. Yes, this is the weakest the Dollar has been since 2022, but it is nowhere as cheap as it was in the period 2008-2011. The great financial crisis left the Dollar weak as the FED was left attempting to work through toxic mortgage assets at the time. The strength of the Dollar since 2020 can be ascribed to American exceptionalism attracting capital. This is where the Magnificent Seven attracted capital flows and created trillion Dollar companies for the first time in history.
But the geopolitical situation in the world, driven by ballooning US debt, is causing concern.
The world pre-Trump was aware of its debt situation but was happy to concede that a “steady hand at the helm” would allow for the state to uphold rules, laws and by default world order. In this world, the US plays global policeman and, at the same tim,e ensures that they don’t jolt the system, as so many rely on a steady Euro-Dollar market globally. They in effect created the post World Ware 2 consensus that we all know so well. Post Davos and Trump’s Greenland agenda, the world has awoken to an America which is very much out of touch with its old world order role.
Investors are clearly exiting the US Dollar in favour of other assets, most notably Gold.
The world of finance is starting to question the reserve status of the US Dollar and diversifying Dollar risk is becoming important. Overseas pension funds are starting to treat US bonds with less rose-coloured glasses and this begs the question: Where will the Americans find enough buyers to purchase new debt issuances in the future if they can’t rely on old friends anymore? Is this trade going to become trickier in the future?
The US has 2 things going for it. One is its military and the other is the US Dollar. A cheaper US Dollar can assist American exports, but will ultimately drive up the cost of living. So the boost in export volumes is great, but once one views this in constant currency terms, the benefit will become a lot more muted. And once all this spills over into rising inflation, the federal government may be in for a tough time.
Only time will tell how much they are prepared for the Dollar to weaken.
The other factor at play for the US is at what point does its currency lose world reserve currency status? It is one thing to allow for the devaluation, but there is a point at which the US Dollar becomes weak enough for opinion to shift as to its reserve status. To get this back is going to take much more effort than just allowing for a stronger currency.
The US had a large inflation problem leading up to the early eighties. Paul Volcker decided to aggressively hike rates, which saw a tremendous appreciation in the Dollar (see graph). The net effect was lower inflation, but it required global co-operation (The Plaza accord) to weaken the US Dollar to a more manageable level after 1985.
What co-operation will an isolated US have when they need to strengthen its currency again in the future? One should consider this in the light of other countries actively attempting to build Dollar alternatives. At the time of the Plaza Accord, no such alternatives existed.
Author: Cobie LeGrange
EXCHANGE RATES and other Indices:
The Rand/Dollar closed at R16.15 (R16.10, R16.50, …R16.91, R17.13, R17.36, R17.13, R17.27, R17.31, R17.25, R17.38, R17.50, R17.22 , R17.35, R17.33, R17.37, R17.58, R17.65, R17.44, R17.61, R17.74, R18.15,R17.76, R17.72, R17.90, R17.58, R17.89, R17.99, R17.92, R17.77, R17.95, R17.88)
The Rand/Pound closed at R22.11 (R21.97, R22.13, …R22.57, R22.68, R22.74, R22.56, R22.69, R22.76, R22.96, R23.34, R23.37, R23.19, R23.22, R23.35, R23.55, R23.73, R23.84, R23.53, R23.84, R23.84, R24.09, R23.88, R23.76, R24.22, R24.08, R24.49, R24.22, R24.35, R24.05, R24.18)
The Rand/Euro closed the week at R19.14 (R19.04, R19.20, …R19.68, R19.86, R19.99, R19.96, R19.98, R20.02, R20.06, R20.26, R20.33, R 20.22, R20.30, R20.35, R20.38, R20.61, R20.62, R20.44, R20.56, R20.64, R21.04, R20.86, R20.61, R20.93, R 20.70, R20.91, R20.74, R20.68, R20.24, R20,37)
Brent Crude: Closed the week $69.32 ($65.88, $63.34, …$63.71, $63.19, $62.42, $63.94, $63.61 $64.66, $65.04, $61.27, $62.14, $64.28, $69.67, $66.57, $66.80, $65.52, $67.38, $67.73, $66.08, $66.07, $69.46, $68.29, $69.21, $70.58, $68.27, $67.39, $77.27, $74.38, $66.56, $62.61, $65.41)
Bitcoin closed at $81,301 ($89,295, $90,585, … $90,809, $86,334, $94,990, $101,562, $109.936, $112,492, $106,849, $111,888, $124,858, $109,446, $115,838, $115,770, $110,752, $108,923, $114,916, $117,371, $118,043, $113,608, $118,139, $118,214, $117,871, $108,056, $107,461, $103,455)
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Holiday checklist NEW
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Next year – Vision, Mission etc NEW
Medical Risk Mitigation
Next Year – Consolidation
Abdication or diversification?
Carbo-loading your retirement
Spoiled for choice
Who needs a plan anyway
8 questions you need to ask about retirement
What to do when interest rates drop
How to survive volatility in your investments
What to do when interest rates drop
Difficult Financial Conversations
Financial Implications of Longevity
Kick Start Your Own Retirement Plan
You matter more than your kids in retirement
To catch a falling knife
Income at retirement
2025 Budget
Apportioning blame for your financial state
Tempering fear and greed
New Year’s resolutions over? Try a Wealth Bingo Card instead.
Wills and Estate Planning (comprehensive 3 in one post)
Pre-retirement – The make-or-break moments
Some unconventional thoughts on wealth and risk management
Wealth creation is a balancing act over time
Wealth traps waiting for unsuspecting entrepreneurs
Two Pot pension system demystified
Cobie Legrange and Dawn Ridler,
Rexsolom Invest, Licensed FSP 45521.
Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za
Website: rexsolom.co.za, wealthecology.co.za