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Tag: u.s. dollar

  • Bitcoin (BTC) Price Remains Under Pressure Following Fed Rate Cut

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    All things being equal, easier Fed monetary policy tends to lead to a weaker U.S. dollar, falling bond yields, rising precious metals prices and gains for risk assets, bitcoin BTC$92,398.57 and crypto among them.

    Following the Fed’s rate cut yesterday, the dollar is indeed weaker — the DXY falling to a seven-week low — precious metals are sharply higher, with silver touching a new record of $64 per ounce, and the 10-year Treasury yield has pulled back to 4.12% from 4.20%.

    In what’s become a familiar story, though, crypto is not participating. After (very) briefly rallying above $94,000 in the minutes following the rate cut, bitcoin BTC$92,398.57 has slumped to $89,400, now down 3% over the past 24 hours. Ether ETH$3,247.05 is down 5.5%, while XRP and solana slide closer to 4%.

    Possibly souring the mood in crypto are declining AI-related names following Oracle’s (ORCL) disappointing quarterly earnings released last night. Oracle has plunged 14% on Thursday, pulling down familiar names like Nvidia, AMD and Broadcom. The Nasdaq is lower by 1.2%.

    Bitcoin mining stocks — many of whom have pivoted business models to focus instead on AI infrastructure — are lower alongside: Hut 8 (HUT), Iren (IREN), Cipher (CIFR) and Riot Platforms (RIOT) are among those with losses in the 5%-6% range.

    Leading bitcoin treasury player Strategy (MSTR) is off by 6.4%, while crypto exchange Coinbase (COIN) is down 5%. Robinhood (HOOD) is lower by 8.3% after a November update showed a disappointing slump in crypto trading volumes.

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  • Russia’s Vladimir Putin claims the Biden administration is ‘killing’ the USD by using it as a weapon — says ‘blow was dealt’ to America and even its allies are now ‘downsizing’ the dollar

    Russia’s Vladimir Putin claims the Biden administration is ‘killing’ the USD by using it as a weapon — says ‘blow was dealt’ to America and even its allies are now ‘downsizing’ the dollar

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    Russia’s Vladimir Putin claims the Biden administration is ‘killing’ the USD by using it as a weapon — says ‘blow was dealt’ to America and even its allies are now ‘downsizing’ the dollar

    Russia’s president Vladimir Putin has once again taken aim at the U.S. dollar — accusing President Joe Biden’s administration of “killing [it] with [its] own hands” after using the currency as a weapon of foreign policy.

    In a new and highly divisive interview with Tucker Carlson, the Russian leader said: “The dollar is the cornerstone of the United States’ power… it is the main weapon used by the U.S. to preserve its power across the world.

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    “As soon as the political leadership decided to use the dollar as a tool of political struggle, a blow was dealt to this American power.”

    To illustrate that alleged decline in the dollar’s dominance, Putin — whose comments were translated live from Russian to English — pointed out that “even the U.S. allies are downsizing the dollar in their reserves.”

    Is this trend away from the greenback — known as de-dollarization — really as bad as Russia’s president makes it out to be?

    Was the writing on the wall?

    De-dollarization occurs when countries shift away from the dollar as a reserve currency, medium of exchange or unit of account. The U.S. has repeatedly dismissed any notions that this is a problem — instead deeming it a “natural desire [for countries] to diversify” their economies.

    But Putin implied Russia’s hand was forced to ramp up its de-dollarization plans after its invasion of Ukraine in 2022, which triggered a backlash of heavy sanctions by the U.S. and other Western powers. Russia was also kicked off the world’s main international payments network Swift.

    “Look at what is going on in the world,” Putin told Carlson. “Until 2022, nearly 80% of foreign transactions in Russia were settled in U.S. dollars or euros. Currently, it is now down to 13%… By the way, our transactions in yuan accounted for about 3%. Today, 34% of our transactions are made in rubles, and about as much, a little over 34%, in yuan.”

    While Putin blamed the sanctions in this most recent interview, many would argue the writing has long been on the wall regarding Russia’s de-dollarization.

    Russia is a founding member of BRICS, a group of emerging market economies — including China, India, Brazil, South Africa and many more — who are trying to settle major trades in their local currencies instead of the U.S. dollar. This movement is gaining momentum as countries try to reduce transaction costs, limit their exposure to global volatility and geopolitical risks and boost their local economies.

    Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here’s how

    What does the de-dollarization data say?

    The Russian president’s warning about the greenback is well-timed. It comes amid heightened speculation around the dollar’s position as the world’s reserve currency, in large part due to the nation’s historic $34 trillion mountain of debt.

    According to data from the IMF, the greenback’s share of global allocated foreign exchange reserves has fallen by around 6% since early 2016.

    However, the U.S. dollar still accounted for 59.17% of global allocated foreign exchange reserves in the third quarter of 2023 (the latest data set) — a stark contrast to the Chinese yuan’s 2.37% of reserves in the same period.

    Analysts at FXC Intelligence, who recently published a report on de-dollarization, stated: “Our research shows that de-dollarization is happening, but… it is by no means rapid.

    “It is instead currently on course to be a slow process over the next couple of decades as countries shift to a broader range of currencies, likely to provide greater hedging from future possible geopolitical shocks.”

    What to read next

    This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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  • Why Fed rate hikes take so long to affect the economy, and why that effect may last a decade or more

    Why Fed rate hikes take so long to affect the economy, and why that effect may last a decade or more

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    The U.S. economy continues to grow despite the 5.5% benchmark federal funds interest rate set by the Federal Reserve in 2023.

    The Fed’s leaders expect their interest rate decisions to eventually slow that growth.

    The increase in borrowing costs that stems from Fed decisions does not affect all consumers immediately. It typically affects people who need to take new loans — first-time homebuyers, for example. Other dynamics, such as the use of contracts in business, can slow the ripple of Fed decisions through an economy.

    “It might not all hit at once, but the longer rates stay elevated, the more you’re going to feel those effects,” said Sarah House, managing director and senior economist at Wells Fargo.

    “Consumers did have additional savings that we wouldn’t have expected if they had continued to save at the same pre-Covid rate. And so that’s giving some more insulation in terms of their need to borrow,” said House. “That’s an example of why this cycle might be different in terms of when those lags hit, versus compared to prior cycles.”

    A 1% interest rate increase can reduce gross domestic product by 5% for 12 years after an unexpected hike, according to a research paper from the Federal Reserve Bank of San Francisco.

    “It’s bad in the short term because we worry about unemployment, we worry about recessions,” said Douglas Holtz-Eakin, president of the American Action Forum, referring to the paper’s implications for central bank policymakers. “It’s bad in the long term because that’s where increases in your wages come from; we want to be more productive.”

    Some economists say that financial markets may be responding to Federal Reserve policy more quickly, if not instantaneously. “Policy tightening occurs with the announcement of policy tightening, not when the rate change actually happens,” said Federal Reserve Governor Christopher Waller in remarks July 13 at an event in New York.

    “We’ve seen this cycle where the stock market moved more quickly in some cases, more slowly in other cases,” said Roger Ferguson, former vice chair of the Federal Reserve. “So, you know, this question of variability comes into play, as in how long it’s going to take. We think it’s a long time, but sometimes it can be faster.”

    Watch the video above to see why the Fed’s interest rate hikes take time to affect the economy.

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  • How the Fed fights zombie firms

    How the Fed fights zombie firms

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    Some firms sustain their businesses by taking on more debt that they can repay. Economists call them zombie companies. When compared to their peers, zombies are smaller in size and deliver lower returns to investors. These companies distort markets, keeping resources from their fundamentally sound competitors. Banks and governments keep zombie firms alive with bailout loans. As the Federal Reserve resets the economy with higher interest rates, many zombie firms are filing for bankruptcy.

    10:01

    Tue, Oct 31 20236:00 AM EDT

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  • Southeast Asia moves closer to economic unity with new regional payments system

    Southeast Asia moves closer to economic unity with new regional payments system

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    Indonesian President Joko Widodo makes a speech during the Association of Southeast Asian Nations (ASEAN) Foreign Minister’s Meeting in Jakarta, Indonesia on July 14, 2023.

    Murat Gok | Anadolu Agency | Getty Images

    A new regional cross-border payment system recently implemented by Southeast Asian nations could deepen financial integration among participants, bringing the ASEAN bloc closer to its goal of economic cohesion.

    The program, which allows residents to pay for goods and services in local currencies using a QR code, is now active in Indonesia, Malaysia, Thailand and Singapore. The Philippines is expected to join soon.

    That’s according to each country’s respective central bank.

    The move comes after the five Southeast Asian countries signed an official agreement late last year. At the recent ASEAN summit in May, leaders also reiterated their commitment to the project, pledging to work on a road map to expand regional payment links to all ten ASEAN members.

    The scheme is aimed at supporting and facilitating cross-border trade settlements, investment, remittance and other economic activities with the goal of implementing an inclusive financial ecosystem around Southeast Asia.

    Analysts say retail industries will particularly benefit amid an expected rise in consumer spending, which could in turn strengthen tourism.

    Regional connectivity is considered crucial to reduce the region’s reliance on external currencies like the U.S. dollar for cross-border transactions, particularly among businesses. The greenback’s strength in recent years has resulted in weaker ASEAN currencies, which hurts those economies since the majority of the bloc’s members are net energy and food importers. 

    “The system will forgo the U.S. dollar or the Chinese renminbi as intermediary,” said Nico Han, a Southeast Asia analyst at Diplomat Risk Intelligence, the consulting and analysis division of current affairs magazine The Diplomat.

    A unified cross-border digital payment system will “foster a sense of regionalism and ASEAN-centrality in managing international affairs,” he added. “This move becomes even more crucial in light of escalating tensions among major global powers.”

    How it works

    By connecting QR code payment systems, funds can be sent from one digital wallet to another.

    These digital wallets effectively act as bank accounts but they can also be linked to accounts with formal financial institutions.

    For instance, Malaysian tourists in Singapore can make a payment with Malaysian ringgit funds in their Malaysian digital wallet when making a transaction. Or, a Malaysian worker in Singapore can send Singapore dollar funds in a Singaporean digital wallet to a recipient’s wallet in Malaysia. 

    Fees and exchange rates will be determined by mutual agreement between the central banks themselves.

    For now, a region-wide system like this doesn’t exist in other parts of the world but down the road, the Bank of International Settlements, based in Switzerland, hopes to connect retail payment systems across the world using QR codes and mobile phone numbers.

    “The ASEAN central banks’ effort is innovative and novel,” said Satoru Yamadera, advisor at the Asian Development Bank’s Economic Research and Development Impact Department.

    “In other regions like Europe, retail payment connection via credit and debit cards is more popular while China is well-known for advanced QR code payment, but they are not connected like the ASEAN QR codes,” he continued.

    Economic benefits

    QR payments don’t impose fees on cardholders and merchants. They also boast of better conversion rates than those set by private payment processors like Visa or American Express.

    Micro enterprises as well as small- and medium-sized businesses, or SMBs will emerge as winners from regional payment connectivity, experts say. According to the Asian Development Bank, such companies account for over 90% of businesses in Southeast Asia.

    “SMBs can avoid the expenses associated with maintaining a physical point-of-sale system or paying interchange fees to card companies,” explained Han from Diplomat Risk Intelligence.

    Marginalized individuals from low-income backgrounds also stand to benefit. As the payment system works via digital wallets and doesn’t require a traditional bank account, it can be used by the unbanked population.

    “The system has the potential to improve financial literacy and wellbeing for the underbanked population,” Han noted.

    Chinese tourist numbers in Thailand are down but they are spending more, hospitality company says

    ASEAN’s new system will also enable merchants and consumers to build a robust payment history, and provide valuable data for credit scoring, said Nicholas Lee, lead Asia tech analyst at Global Counsel, a public policy advisory firm.

    “That’s particularly advantageous for unbanked and underbanked segments of the population, who traditionally lack access to such credit assessment data.”

    Moreover, “increased non-cash transactions would allow policymakers to capture transaction data and trade flow more effectively, assuming these data are accessible,” said Lee.

    “This, in turn, could lead to better economic forecasting and policymaking.”

    Currency pressure ahead

    While strengthening payment connectivity within the region has the potential to reduce payment friction and accelerate digital transition, it could inadvertently put pressure on certain currencies, particularly the Singapore dollar.

    “The potential scenario of the [Singapore dollar] emerging as a de facto reserve currency within the region poses a challenge that ASEAN states will need to confront,” said Lee.

    We see the biggest opportunities in Indonesia, says Dubai-based supply chain firm

    “With the [Singapore dollar’s] strength and stability, both international and regional businesses may opt to hold more of their working capital in [Singapore dollars], relying on the new payment network for efficient currency conversion,” he explained. 

    If that happens, it could weaken the purchasing power of other currencies in the region and result in higher imported inflation if central banks don’t intervene.

    In such a scenario, authorities may feel the need to impose capital restrictions in order to protect their respective currencies, which could undermine the very purpose of establishing a regional payment network.

    Regulations pose another challenge.

    Central banks will have to address security and fraud issues, plus undertake the task of educating the public to embrace the new payment system, said Han.

    “These factors can collectively contribute to a time-consuming process,” he warned.

    This kind of coordinated action will require strong political will from regional leaders and it remains to be seen if ASEAN members can come together to successfully implement such an ambitious venture.

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  • Why substituting cryptocurrency for gold exposure may be a costly mistake

    Why substituting cryptocurrency for gold exposure may be a costly mistake

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    Viewing cryptocurrency as “digital gold” may be a mistake.

    State Street Global Advisors’ George Milling-Stanley, whose firm runs the world’s largest gold exchange-traded fund, believes cryptocurrency is no substitute for the real thing due its vulnerability to big losses.

    “Volatility does not back up any claims for crypto to be a long-term strategic asset as a competitor to gold,” the firm’s chief gold strategist told CNBC’s “ETF Edge” earlier this week.

    Milling-Stanley’s firm is behind SPDR Gold Shares, the world’s largest physically backed gold ETF. It has a total asset value of more than $57 billion as of last week, according to the company’s website. The ETF is up 7% year to date as of Friday’s market close.

    Milling-Stanley believes gold’s 6,000-year history as a monetary asset serves as a significant sample basis to understand the benefits of investing in gold.

    “Gold is a hedge against inflation. Gold’s a hedge against potential weakness in the equity market. Gold’s a hedge against potential weakness in the dollar,” he noted. “To me, historically, the promise of gold for investors has … overtime [helped] to enhance the returns of a properly balanced portfolio.”

    The precious metal is having trouble this year staying above the $2,000 an ounce mark. But Milling-Stanley believes the economic backdrop bodes well for gold — recession or not.

    “It’s pretty clear that we’re liable to be in a period of slow growth. … Historically, gold has always done well during periods of slower growth,” Milling-Stanley said.

    Milling-Stanley also believes the relaxation of Covid-19 restrictions in China should spark more demand for gold. It’s known as the world’s largest consumer of gold jewelry behind India, according to the World Gold Council.

    “It’s not just China and India. It’s Vietnam, it’s Indonesia, it’s Thailand and Korea. It’s a whole raft of Asian countries that are really the main drivers of gold jewelry demand,” Milling-Stanley said.

    Gold settled at $1,960.47 an ounce Friday. The commodity is up more than 7% so far this year.

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  • Calls to move away from the U.S. dollar are growing — but the greenback is still king

    Calls to move away from the U.S. dollar are growing — but the greenback is still king

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    Calls to move away from relying on the U.S. dollar for trade are growing.

    More and more countries — from Brazil to Southeast Asian nations — are calling for trade to be carried out in other currencies besides the U.S. dollar.

    The U.S. dollar has been king in global trade for decades — not just because the U.S. is the world’s largest economy, but also because oil, a key commodity needed by all economies big and small, is priced in the greenback. Most commodities are also priced and traded in U.S. dollars.

    But since the Federal Reserve embarked on a journey of aggressive rate hikes to fight domestic inflation, many central banks around the world have raised interest rates to stem capital outflows and a sharp depreciation of their own currencies.

    “By diversifying their holdings reserves into a more multi-currency sort of portfolio, perhaps they can reduce that pressure on their external sectors,” said Cedric Chehab from Fitch Solutions.

    To be clear, the U.S. dollar remains dominant in global forex reserves even though its share in central banks’ foreign exchange reserves has dropped from more than 70% in 1999, IMF data shows.

    The U.S. dollar accounted for 58.36% of global foreign exchange reserves in the fourth quarter last year, according to data from the IMF’s Currency Composition of Foreign Exchange Reserves (COFER). Comparatively, the euro is a distant second, accounting for about 20.5% of global forex reserves while the Chinese yuan accounted for just 2.7% in the same period.

    China is one of the most active players in this push given its dominant position in global trade right now, and as the world’s second largest economy.

    Based on CNBC’s calculation of IMF’s data on 2022 direction of trade, mainland China was the largest trading partner to 61 countries when combining both imports and exports. In comparison, the U.S. was the largest trading partner to 30 countries.

    “As China’s economic might continues to rise, that means that it’ll exert more influence in global financial institutions and trade etc,” Chehab told CNBC last week.

    China — long among the top 2 foreign holders of U.S. Treasurys — has been steadily reducing its holdings of U.S. Treasury securities.

    Mainland China held nearly $849 billion of U.S. Treasurys as of February this year, the latest data from the U.S. Treasury department showed. That’s at a 12-year low, according to historic data.

    Changing dynamics

    Brazil is rebuilding ties with China, former Brazilian diplomat says

    Economic benefits

    Analysts say changing global economic dynamics are driving the co-called de-dollarization trend which can benefit local economies in a number of ways.

    Trading in local currencies “allow exporters and importers to balance risks, have more options to invest, to have more certainty about the revenues and sales,” former Brazilian ambassador to China, Marcos Caramuru, told CNBC last week.

    Another benefit for countries moving away from using the dollar as the middle man in bilateral trade, is to “help them move up the value chain,” said Mark Tinker from ToscaFund Hong Kong told CNBC “Street Signs Asia” early April.

    “It isn’t about selling cheap stuff to Walmart, keeping down the prices for American consumers in order to earn dollars to buy its energy. This is now about actually a completely bilateral trade bloc,” Tinker said.

    The de-dollarization trend is a reflection that U.S. growth is no longer the only story that matters

    Meanwhile, growth of non-U.S. economic blocs also encourage these economies to push for wider use of their currencies. The IMF estimates that Asia could contribute more than 70% to global growth this year.

    “U.S. growth might slow, but U.S. growth isn’t what it’s all about anymore. There is a whole non-U.S. block that’s growing,” said Tinker. “I think there is going to be a re-internationalization of flows.”

    Geopolitical concerns

    Geopolitical risks have also accelerated the trend to move away from U.S. dollar.

    “Political risk is really helping introduce a lot of uncertainty and variability around how much of a safe haven that U.S. dollar really is,” said Galvin Chia from NatWest Markets told “Street Signs Asia” earlier.

    Tinker said what accelerated the calls for de-dollarization was the U.S. decision to freeze Russia’s foreign currency reserves after Moscow invaded Ukraine in February 2022.

    The yuan has reportedly replaced the U.S. dollar as the most traded currency in Russia, according to Bloomberg.

    So far, the U.S. and its western allies have frozen more than $300 billion of Russia’s foreign currency reserves and slapped multiple rounds of sanctions on Moscow and the country’s oligarchs. This forced Russia to switch trade to other currencies and increase gold in its reserves.

    “Now you find that if you disagree with U.S. foreign policy, you risk having those confiscated or frozen. You’ve got to have alternative place to put those assets,” Tinker said. In the Middle East, major oil exporter Saudi Arabia has reportedly signaled it’s open to trade in other currencies other than the greenback. 

    Although analysts don’t anticipate a complete break away from dollar-denominated oil trade over the short-term, “I think what they’re saying more is, well, there’s another player in town, and we want to look at how we trade with them on a bilateral basis using yuan,” said Chehab.   

    Dollar is still king

    Despite the slow erosion of its hegemony, analysts say the U.S. dollar is not expected be dethroned in the near future — simply because there aren’t any alternatives right now.

    “Euro is somewhat an imperfect fiscal and monetary union, the Japanese yen, which is another reserve currency, has all sorts of structural challenges in terms of the high debt loads,” Chehab told CNBC.

    The Chinese yuan also falls short, Chehab said.

    “If you look at the yuan reserves as a share of total reserves, it’s only about 2.5% of total reserves, and China still has current account restrictions,” Chehab said. “That means that it’s going to take a long time for any other currency, any single currency to really usurp the dollar from that perspective.”

    Data from IMF shows that as of the fourth quarter of 2022, more than 58% of global reserves are held in U.S. dollar — that’s more than double the share of the euro, the second most-held currency in the world.

    The international reserve system “is still a U.S.-reserve dominated system,” said NatWest’s Chia.

    “So long as that commands the majority, so long as you don’t have another currency system or economy that’s willing to step up to that international reach, convertibility and free floating and the responsibility of a reserve currency, it’s hard to say dollar will be displaced over the next 3 to 5 years. unless someone steps up.”

    — CNBC’s Joanna Tan and Monica Pitrelli contributed to this report.

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  • ‘Fed is not your friend’: Wells Fargo delivers warning ahead of key inflation report

    ‘Fed is not your friend’: Wells Fargo delivers warning ahead of key inflation report

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    As Wall Street gears up for key inflation data, Wells Fargo Securities’ Michael Schumacher believes one thing is clear: “The Fed is not your friend.”

    He warns Federal Reserve chair Jerome Powell will likely hold interest rates higher for longer, and it could leave investors on the wrong side of the trade.

    “You think about the history over the last 15 years. Whenever there was weakness, the Fed rides to the rescue. Not this time. The Fed cares about inflation, and that’s just about it,” the firm’s head of macro strategy told CNBC’s “Fast Money” on Monday. “So, the idea of lots of easing — forget it.”

    The Labor Department will release its January consumer price index, which reflects prices for good and services, on Tuesday. The producer price index takes the spotlight on Thursday.

    “Inflation could come off a fair bit. But we still don’t know exactly what the destination is,” said Schumacher. “[That] makes a big difference to the Fed – if that’s 3%, 3.25%, 2.75%. At this point, that’s up in the air.“

    He warns the year’s early momentum cannot coexist with a Fed that’s adamant about battling inflation.

    “Higher yields… doesn’t sound good to stocks,” added Schumacher, who thinks market optimism will ultimately fade. So far this year, the tech-heavy Nasdaq is up almost 14% while the broader S&P 500 is up about 8%.

    Schumacher also expects risks tied to the China spy balloon fallout and Russia tensions to create extra volatility.

    For relative safety and some upside, Schumacher still likes the 2-year Treasury Note. He recommended it during a “Fast Money” interview in Sept. 2022, saying it’s a good place to hide out. The note is now yielding 4.5% — a 15% jump since that interview.

    His latest forecast calls for three more quarter point rate hikes this year. So, that should support higher yields. However, Schumacher notes there’s still a chance the Fed chief Powell could shift course.

    “A number of folks in the committee lean fairly dovish,” Schumacher said. “If the economy does look a bit weaker, if the jobs picture does darken a fair bit, they may talk to Jay Powell and say ‘Look, we can’t go along with additional rate hikes. We probably need a cut or two fairly soon.’ He may lose that argument.”

    Disclaimer

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  • For The U.S., Bitcoin Is A National Security Opportunity, Not A Threat

    For The U.S., Bitcoin Is A National Security Opportunity, Not A Threat

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    This is an opinion editorial by Matt Smith, an operations officer for the United States Air Force and an assistant professor of aerospace studies at the University of Nebraska-Lincoln.

    As the country’s most adversarial competitors actively pursue ways to de-dollarize the world while simultaneously publicly announcing, “the economy of imaginary wealth is being inevitably replaced by the economy of real valuables and hard assets,” the race for bitcoin accumulation, the hardest and scarcest asset in the world, is not too far off in the not so distant future.

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    Matthew Smith

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