Weekly Outlook

Weekly Market Overview: Politics or Economics

| 20 February, 2025 at 12:00 GMT

     Two consecutive weeks of losses in USD index  that traded weaker on Thursday at 106.87. USD index ( DXY ) lost -1.5% YTD, passively correlated to the US 10Y bond yields that fell by -1% YTD. On yearly basis, DXY increased by 2.5%, and the yields rose by 5.7%  as well  ! Chart: Tradingview

      Is this decline the beginning of USD index’s bearish trend? What does America  really want? Is Trump looking for stronger or weaker USD? According to Bloomberg, the percentage of greenback in Worldwide payments increased to 50.2% in January 2025, up from 49.1% in December 2024. It is a fact that Trump wanted weaker interest rates from the Fed, putting more pressure on the Fed policy makers, however Trump warned that he will impose 100% tariffs on BRICS group if they try to create their own currency away from USD & SWIFT system. 

      What the US president Trump believes  is that the other trading partners were & still taking benefits of the strong USD which means that their exports to America remained more competitive than the American exports to their countries, that’s why America has huge trade deficit with many countries including Japan & Germany. At the same time, US eco0nomy is still doing well comparing to EZ, UK , Japan and even China that struggles to achieve its own growth target. American exceptionalism gave USD more value , not to mention that Fed interest rate remained at 4.5%, higher than China 3.1%, Japan 0.5%, ECB 2.9% and UK 4.5%, in other words , buying USD is the easiest & safest way to generate stable returns among other currencies.  So, yes Trump wants weaker USD, but global economy still favors the greenback. 

Chart : Bloomberg  – Greenback remained the king 

    What a performance ! Gold is still up by more than 45% YoY, 12.5% YTD, strong & stable performance at record high $2950 per ounce, all -time high. Chart shows that there is a positive correlation between the performance of gold & US inflation, the higher the inflation, the stringer the demand for gold , CPI in America increased by 2.3% ( as a percentage not the value) because the inflation the US rood at 3%, higher than the Fed target of 2%. Chart: Tradingview 

        According to Charlie Bilello chart below, the actual inflation in the US continues to drift further away from the Fed’s 2% target with CPI since the start of 2020 running at 4.2% annualized rate. So, what does that mean? It simply means that the Fed is in no rush to reduce the rates, with 97% probability of no change in rates in March meeting. 

         Second chart below ( Charlie Bilello )  shows how the global inflation rates look like. Inflation in America is not the highest, but the trend persisted to higher than the previous reading, not like Switzerland, Canada & Saudi Arabia which have weaker expectations for inflation. Unexpectedly, Japan now has higher inflation than America at 3.6%, the highest since January 2023 due to higher food prices & electricity cost. Japan is a country with almost the highest aging population where people aged 65 and older represent 37.5% of the population, Italy 37.1%, Spain 36.6% and Hong Kong 40.6%.