On April 21st, all three major U.S. stock indices fell across the board. The Dow Jones Industrial Average closed down 971.82 points, a drop of 2.48%, at 38,170.41. The S&P 500 Index fell by 2.36%, closing at 5,158.20; the Nasdaq Composite Index plummeted by 2.55%, closing at 15,870.90, marking its largest single-day decline since February this year.

The tech sector suffered heavy losses, with the seven major tech giants once favored by the market becoming the main drivers of the decline. Tesla's shares plunged by 5.8%, NVIDIA dropped more than 4%, and Amazon and Meta Platforms both fell by about 3%.

One of the key triggers for this round of market downturn was Trump once again attacking Fed Chairman Powell through his social platform. He called Powell "Mr. Too Late, a great failure," demanding an "immediate interest rate cut," or else the U.S. economy would slow down. Last week, he also hinted at possibly "terminating" Powell's position, causing the market to be highly vigilant about the independence and policy neutrality of the Federal Reserve.

Although legally complex for the president to dismiss the Fed chairman, his remarks were enough to create significant unease in the market. "What we are witnessing is a power struggle over monetary policy control," noted Michael Green, chief strategist at Simplify Asset Management, pointing out that this evokes memories of the conflict between the government and the Federal Reserve at the beginning of the pandemic.

In addition to stock indices and tech giants, the dollar index also continued to fall. On April 21st, the ICE Dollar Index fell by 0.94% at the New York close, reporting 98.294, falling nearly 10% cumulatively this year.

In early trading on the 21st, the dollar index "gapped lower" at the opening, breaking below the 99 level. It then fluctuated weakly within the 98-99 range. At 17:21 Beijing time, it fell to 97.921, subsequently oscillating at low levels, marking the first time since March 30, 2022, that it fell below 98.

In the long term, since breaking above 110 in January, the dollar index has been continuously declining, falling nearly 10% this year.

In financial markets, a "break below 100" for the dollar index is typically seen as the starting point of a trend reversal, while further declines below 99 often signal the accumulation of deeper systemic risks. This current dollar decline marks the sixth time since the collapse of the Bretton Woods system in 1973 that the dollar has fallen below 100.

Since the 21st century, there have been two periods when the dollar index remained below 100 for a long time. The first was from March 2003 when the Iraq War began, combined with the euro's recovery leading to a decline in confidence in the dollar, keeping the dollar index below the 100 mark until November 2016. During this period, the 2008 financial crisis occurred, and the Federal Reserve launched the largest-scale quantitative easing (QE) policy in history, rapidly expanding its balance sheet, causing the dollar index to一度 hover near 90; the second was from April 2017 to April 2022, during which time the dollar was mostly below 100. During this period, the "Trump 1.0" era's trade war, combined with the impact of the 2020 pandemic, severely damaged the dollar index.

This current dollar decline occurs against the backdrop of the Federal Reserve not yet clearly cutting rates, the U.S. not being in a deep recession, and global risk assets not experiencing a comprehensive collapse. This indicates that the "psychological pillar" supporting the dollar's depreciation is collapsing.

According to reports by CCTV News, industry insiders believe that under normal circumstances, expectations of tariff increases should lead to a stronger dollar. U.S. Treasury Secretary Basnet once proposed that the degree of dollar appreciation would be sufficient to offset the impact of rising inflation. However, reality shows that the dollar weakened simultaneously with the introduction of tariff policies. Recent analysis by The New York Times suggests that the continuous decline of the dollar may indicate that investors are beginning to avoid the dollar, which has long been considered the "safe haven" of the global financial market.

Goldman Sachs recently released a report indicating that there are three reasons for the dollar's weakness.

Firstly, the dollar itself has a valuation bubble. Its current valuation deviates from the fundamentals, overvalued by 20%. Goldman Sachs pointed out that the strength of the dollar has been supported by America's "exceptionalism" and global capital inflows. As America's "exceptionalism" dissolves, valuation pressures are reversing.

Secondly, profits and consumption are affected by tariffs: the results of Trump's tariffs are not only price increases but also deeper damage to American companies' profits and American households' consumption capacity, which is the engine of America's "exceptionalism." In other words, tariffs are shaking the core pillars sustaining the strong dollar.

Thirdly, structural capital outflows. Goldman Sachs believes that this is not like the tariff friction in 2018, but more akin to the "American version of Brexit." In 2018, the trade war targeted individual countries, whereas now it targets the entire world. This is not tactical friction but structural decoupling.

According to reports by China Economic Network, Wang Yanqing, an analyst of precious metals at CITIC Construction Investment Futures, analyzed that the core logic driving gold prices higher lies in the fact that America's tariff policies are hindering the global division of labor supply chain system and destroying the dollar-centered monetary system. When people bear more costs using the dollar, market trust and demand for the dollar decrease.

Currently, Trump continues to threaten to weaken the independence of the Federal Reserve, raising concerns that he might force interest rate cuts to boost the economy, even if doing so could trigger runaway inflation.

Goldman Sachs warned that if the Federal Reserve becomes a political tool, bowing to political pressure without regard for inflation risks and drastically cutting interest rates, it will lead to a devaluation of the dollar and the collapse of real interest rates, pushing gold prices to soar. Goldman Sachs pointed out that historically, whenever central banks lose their independence, it triggers a crisis of faith in legal tender, resulting in a significant increase in gold prices.

"We face a directionless market," warned Robert Haworth, senior investment strategist at Bank of America. "No one knows how tariffs will ultimately play out, and markets cannot make asset allocations based on policy directions."

He further pointed out that if such uncertainty persists for several quarters, it will have a significant impact on corporate earnings expectations and strategic decision-making. Many companies have expressed concerns about future orders, raw material costs, and export market prospects in the recently concluded earnings season.

This article is an exclusive contribution by Observer Network and is unauthorized for reprinting.

Original source: https://www.toutiao.com/article/7495923527548305947/

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