A theme that had been building throughout this entire year was how a compromised Federal Reserve independence, combined with a more isolationist US policy (and de-globalization), would send the US dollar into shambles.
In fact, this theme has been a favorite for Market enthusiasts, particularly as a compromised US dollar would participate in a rewiring of all financial flows.
Since COVID, a spectacular rise in the USD supply has ramped up inflationary pressures, which got exacerbated by ever-higher government spending, hurting confidence in Fiat currencies.
Particularly after the surprising dovish shift from FED speakers, initiated by Trump-appointed Governor Waller and Bowman, Market participants were afraid of a US central bank that would be pressured by the Trump administration and influenced in its activity, further hurting the Greenback.
This turn accelerated even more after Powell’s recent appearance at the Jackson Hole Symposium, which is known for providing market-shambling speeches from central bankers.
It was argued that the speech wasn’t as dovish as interpreted, but metals flying higher decided otherwise.
Now, the tides have calmed: the Wednesday press conference, combined with a not-so-dovish 25 bps cut, has proven early dovish speak to be justified, and the US dollar, which had seen catastrophic days leading to the September meeting, is now making a sharp comeback.
Let’s examine multi-timeframe comprehensive charts of the Dollar Index (DXY) to see how this change may affect US dollar flows in the long run.
