Reference Message Network reported on June 14 that the Nikkei website published an article titled "Dollar Index Falls to New Low Since March 2022 as Overseas Capital Continues to Leave the U.S." The report stated that on the 12th, the dollar index, which measures the strength of the US dollar in the foreign exchange market, hit a new low since March 2022. President Trump expressed his intention to strongly promote tariff negotiations with various countries, driving the momentum of selling the US dollar. Despite concerns over US Treasury bonds and policy uncertainty stimulating interest rate hikes, funds have not flowed back to the US dollar, and overseas capital continues to show a trend of "leaving the US".

On the 12th, the US dollar-to-yen exchange rate fell to 143.10 yen per US dollar, with the trend of the Japanese yen strengthening and the US dollar weakening continuing. Similarly, the US dollar-to-euro exchange rate also continued to fall, once dropping to 1.16 euros per US dollar, hitting the lowest level since October 2021.

The US dollar index, which reflects the strength of the US dollar against major currencies such as the euro and British pound, once fell to 97.6. Compared to when the Federal Reserve began aggressive interest rate hikes in March 2022, despite the current policy interest rates being much higher than at that time, the operation of selling the US dollar continued. Since the end of last year, the US dollar index has fallen by 10% cumulatively, and since the Trump administration took office in January, the US dollar has shown a clear weak tone.

The new uncertainty in the tariff field became the trigger for the day's US dollar selling pressure.

It was reported that Trump said on the 11th that he would send letters containing "deals" to all trading partners within one or two weeks. The deadline for suspending reciprocal tariffs is July 9th. Trump said "there are only two options: accept the deal or reject it," implying that if the requirements are not fully accepted, high tariffs will be imposed. Investors who are tired of this tough attitude chose to sell the US dollar.

The operation of selling the US dollar today is intertwined with multiple factors beyond tariffs. In recent months, particularly noteworthy has been the disappearance of the linkage between US interest rates and the US dollar.

In general, investors tend to buy US dollars to earn interest income when interest rates rise, while they are more likely to sell US dollars when interest rates fall. This tendency has been particularly evident in the market since last autumn. However, since April this year, even with rising US interest rates, the US dollar exchange rate remained weak.

One reason is the growing concern over US Treasury bonds. With the Republican Party leading Congress, there is ongoing debate over a large-scale fiscal stimulus bill proposed by Trump, which is the cornerstone of his tax cut policies. According to calculations by the non-partisan Federal Budget Committee, this bill will increase government debt by $3.1 trillion over ten years. Moody's, a rating agency, downgraded US Treasury bonds, which were previously at the highest rating, in May.

In addition, the sentiment of concern about the impact on the independence of the Federal Reserve has yet to be eliminated. Trump again demanded that the Federal Reserve lower interest rates on the 12th and expressed deep dissatisfaction with Chairman Powell's lack of cooperation, even stating that he will announce Powell's successor soon, though it is still nearly a year before Powell's term ends. If the outlook for monetary policy becomes increasingly unpredictable, investor confidence in the US dollar may continue to decline.

Data from the Federal Reserve Bank of New York shows that the term premium (additional interest rate for 10-year bonds) required by investors to cope with the risk of holding US Treasury bonds briefly reached the highest level in 11 years in May and has remained at high levels. There is a sentiment of avoiding investment in US Treasury bonds in the market, and demand for buying US dollars is also declining.

In fact, an increasing number of investors outside the United States are selling US stocks and bonds and redirecting their funds to their home countries and other regions. Fabiana Fadely, Chief Investment Officer of M&G Investments in the UK, said that institutional investors managed by the company "do not want to concentrate their investments in US assets and continue to request diversification of investments outside the US." She said, "When the reciprocal tariff policy was first announced in April, we heard this from European clients, but recently we received more inquiries from Asian clients. It seems this will be a long-term trend." If more overseas investors sell US assets and turn to domestic assets, then demand for US dollars will also correspondingly decrease. (Translated by Liu Lin)

Original article: https://www.toutiao.com/article/7515719878586712576/

Disclaimer: The article only represents the author's personal views. Please express your attitude by clicking the [Like/Dislike] button below.