The world has become somewhat uncontrollable. This friction arises from the intense competition among multiple forces during the transition phase of the economic cycle, which is often inevitable but carries a lot of uncertainty. The competition between China and the US, as the two largest economies, is the main theme of global power struggles.
Many people have a question: The Federal Reserve has already cut interest rates twice and entered a rate-cutting cycle, so why is the US dollar index continuously rising and setting new highs?
From a logical perspective, as long as the Federal Reserve starts cutting interest rates, the dollar is likely to depreciate. However, the current situation is quite the opposite, and there are multiple factors at play.
On one hand, the market is heating up expectations for US 're-inflation' in 2025. Although current inflation data will not affect the Federal Reserve's decision to continue cutting rates in December, the uncertainty for next year is increasing.
Especially with Trump taking office next year, he will introduce a series of measures, such as tariffs and tax cuts, which will further elevate inflation in the US. As a result, the market predicts that the pace of US interest rate cuts may slow down next year, which is one of the reasons driving up the dollar.
On the other hand, it's not just the US that is cutting interest rates; most countries around the world, including the EU, the UK, Canada, and Switzerland, are also in a rate-cutting cycle. Many Western countries started their rate cuts earlier than the US, and their pace of cuts is more aggressive than that of the US.
The European Central Bank has cut rates for the fourth time this year, while the Bank of Canada has reduced rates by 175 basis points this year. In contrast, the US has cut rates twice this year, totaling 75 basis points. The dollar's rate cuts are relatively mild, while allies are cutting rates more aggressively. The dollar maintains relatively high interest rates, attracting funds into the US, and the currencies of US allies weaken against the dollar, making the dollar index even stronger.
Moreover, the US economy stands out among developed nations, while the economic growth of allies such as the EU, Japan, South Korea, and Australia is slow and far behind that of the US, leading to capital fleeing to the US and the dollar surging.
In simple terms, it's not that the US is particularly strong, but rather that its allies are too weak. This is a world of relative decline; the US breaks through time and again due to the advantages of dollar hegemony, while allies perform poorly, causing funds to flow into the US against the backdrop of US interest rate cuts.
Another factor is that the market is already pricing in Trump's potential tariffs on numerous allies after he takes office next year. Therefore, the market is concerned about the economic outlook for allies next year, leading to funds flowing into the US in advance. This explains why US stocks rise after interest rate hikes and continue to rise after rate cuts; allies are a crucial fuel for the US to maintain dollar hegemony.
From the US perspective, maintaining the hegemony of the dollar is the top priority, and the core of dollar hegemony is to sustain the dollar's rise. As long as the dollar rises, global funds will continue to flow into the US, providing financial support for the US economy while also masking many of the problems and risks that exist within the US itself.
However, in the context of interest rate cuts, the dollar cannot keep rising indefinitely. The current rise of the dollar is like dancing with shackles; once it stops, everyone will see its true nature.
The continuous rise of the US dollar further suppresses gold, leading to a short-term decline in gold prices. Meanwhile, the People's Bank of China has resumed gold purchases after a six-month pause; in November of this year, China's official gold reserves increased by 4.5 tons. What does this mean?
According to data released by the World Gold Council, central banks increased their gold holdings by 60 tons in October this year, setting a new record. The main driver behind the rise in gold prices over the years has been the accumulation of gold by central banks. After a six-month pause, our country has once again increased its gold holdings, which serves to increase the proportion of gold in foreign reserves and stabilize the RMB exchange rate, while possibly also aiming to push up gold prices.
The more chaotic the world becomes, the more excited the US gets, as safe-haven funds flow into the US, pushing up the dollar. They either buy gold, or the US exploits its dollar hegemony to siphon off allies and boost Bitcoin, with funds flooding into the US while gold prices decline.
Central banks around the world continue to increase their gold holdings, raising gold prices. This effectively diverts some funds from safe-haven investments, intercepting a portion of the funds that would have flowed into the US. Additionally, countries are selling US bonds, but the rise of the dollar obscures the true extent of their reductions in dollar reserves.
However, this competition is just the beginning. The US-China 'siphon' has been activated, releasing significant signals. According to this month's high-level meeting, our country will adopt a 'moderately loose' monetary policy in 2025, reopening the floodgates of monetary expansion and once again bringing out the 'siphon' to draw from the entire world.
At this stage, the US is 'siphoning' from the whole world, attracting funds. However, in the context of the interest rate-cutting cycle, the dollar's rise cannot last long because, after cutting rates, the Federal Reserve did not simultaneously expand its balance sheet but continued to reduce it. This is the last struggle before a crisis erupts.
The issues of unlimited debt accumulation and deficits in the US will erupt within the next four years, that is, during Trump's four-year term. We may witness a global collapse and financial storm, which will be a significant reshuffling and an important turning point for the global capital market’s 'East Rising, West Falling.'