I know Groundhog Day has come and gone and it seems like Spring has already arrived but when we listen to the words of the Federal Reserve it’s like Déjà Vu, same old, same old. The USD is at a crossroads, its perceived strength has been sustained through words alone. The continuous rise in interest rates has provided the stimulus for investors to maintain USD holdings to extract greater yields. 

Consequently, the creation of the BRICS Nations, an alternative financial arrangement now with 34 member countries could be influential in the USD demise. Their new monetary arrangement has been motivated to create an alternative monetary system not dependent on the USD. Their currency is backed by substance including Natural resources Precious metals and rare earths,  used as collateral to help fund development projects. The loans that are extended are made in the local currencies of the nation needing the financing mostly for the development of Capital projects. 

As a result, they have effectively stopped investing in USA-denominated bonds. This paper allows the American government to sustain and fund its operations. No money, No honey, sounds like my love life.  Click below and get a better understanding;

https://watcher.guru/news/brics-no-demand-for-us-dollar-bonds-sales-get-worst-start-since-2016

The Global Economy is a train wreck riddled with problems from Supply chain issues to ongoing wars, making the cost of transportation even greater. Recently, a good friend had to visit her ailing father in China. It took her 52 hours to get to her destination because of no-fly zones. 

Imagine, the increase in the cost of goods and services for that matter. Nonetheless, there will be more words spoken about the potential of lowering rates but they will slowly play it providing the USD with a slower downward grind, to avoid a sudden crash-and-burn scenario. 

The surge in Non-Farm Payrolls in the States, was up 353k vs expected (180k), yet the unemployment rate held steady at 3.7%. Wages rose by 4.5% vs expected (4.1%) but is anyone getting ahead when inflation and taxes (direct and indirect) are taking a bigger chunk out of the work effort? Unfortunately, the tight labour market will also be a factor in keeping the Fed from lowering rates anytime soon. 

The Fed talks about how quickly Core Inflation is falling toward its target to allow the Fed to lower rates eventually. They acknowledge the devastation being caused but as a side note, only to interest sensitive sectors. Could it be mostly, families with mortgages and household debt? 

Further, the USD could remain elevated, even though the USD is backed only by government support, saddled with $34 Trillion in debt. A burdensome number which will eventually cause some cataclysmic economic collapse. They can’t keep printing money without eventual consequences. 

Other factors which can keep the USD strong could be as follows;
1) Eurozone could be more aggressive in cutting rates vs The Fed
2) The ECB can increase Quantitative Easing measures, weakening the Euro and increasing value elsewhere. 
3) Heightened Global Risks to retracted global growth and claim U.S. political uncertainties trending to safe-haven.

There is never a dull moment in the world of money. It’s fascinating how people who influence the direction of money can spin a negative and make it sound so positive. A prime example is the European Central Bank (ECB). This week they reported Eurozone Retail sales down <-0.8%> YoY expected <0.9%>, then Eurozone Investor Confidence comes in at <-12.9%> in February expected <-15.9%>. The reality, both are horrible negative numbers yet better than the possible worse outcome. 

The Central Banks continue to collude and control the narrative of policies that are choking business activity, contributing heavily to the inflation outcome across the planet. In Canada, a little different scenario, the Bank of Canada (BOC) will lose $6B this year even though Canadians are paying $40B+ in interest costs to service the manufactured debt. Ultimately, the taxpayer is on the hook for their mismanagement, while they continue to profit. My question is Why?