Jurrien Timmer, global macro director at Fidelity Investments, says the US dollar may lose its global dominance if a certain event happens.
Timmer, in a recent thread on social media platform X says that if Fed was forced to support the bond market by purchasing debt securities the US Dollar Index (DXY), may fall even further.
If the Fed has to return into the bond markets in order to keep nominal and real interest rates down, then the dollar could lose even more of its premium. As Japan learned a few decades ago, currencies are the release valves for an unsustainable fiscal policies. It is the same for the dollar which has continued to decline despite Fed policy being hawkish .”
DXY is a measurement of dollar value relative to six major currencies of leading economies. It currently stands at 98. This represents a decline of over 9% from the previous year.
Timmer says the Fed will have to intervene in the bond markets if the GDP growth rate cannot keep up with the interest rates paid by the government.
The gap between the Treasury’s selling price and what Fed purchases continues to grow. I think this will not last forever. The second round of the fiscal dominance is about to begin, as the second helicopter drop from OBBB will soon be underway.
It’s simple, but it is difficult to calculate: As long as the nominal GDP grows faster than the 10-year Treasury yield (10-year Treasury), debts can be considered as sustainable. Hopefully that will happen, since a capex (capital spending) cycle from the OBBB boom and AI (artificial Intelligence) boom increase productivity, and thus the non-inflationary pace limit for the US Economy.
“If not, and the term premium continues to rise, we may have a debt spiral that is unsustainable in the next few years, forcing the Fed to enter the bond markets to suppress the premium again.”
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This article US Dollar’s ‘Supremacy premium’ to Erode further if Fed Is Forcing To Intervene In Bond Market Says Global Macro Analyst from $15,000,000,000,000 Asset Administrator first appeared on The ICD.
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