Dec 28, 2023

The US dollar continued its slump as markets reopened for the last few days of trading in 2023.


DXY Index – Weekly Chart

The dollar index was trading at $100.95 and will likely test the $100 level in the next two days. That would then be the key level for 2024, with support below $98 and $95.

The US dollar is selling off as traders see the peak in Federal Reserve interest rates and a move to cuts. Data has also softened around the US economy, and traders feel that the dollar has outperformed some of the world’s largest currencies. There may be worries that recession is coming closer if cuts are not sharp enough.

Another problem is in the political sphere, where states such as Colorado seek to remove Donald Trump from the 2024 Presidential ballot. With other court cases piling up for the leading candidate, the months ahead of the November vote could become more contentious and hurt US investment flows. Further tensions between the country’s two political parties could spill over into the debt ceiling issues and other key votes in the year ahead.

The country’s debt rating was downgraded in 2023 by two other rating agencies who cited that political strain, but the debt is a bigger problem.

Former advisor to the People’s Bank of China, Yu Yongding, also said the nation should not reinvest its US treasury monies.

“China should accelerate the adjustment of its overseas asset and liability structure, improve returns on overseas net assets, and lower the share of foreign exchange reserves in its overseas assets”. The slowing demand was as risky for Bridgewater hedge fund billionaire Ray Dalio.

“We’re going to have a debt crisis in this country,” Dalio said, noting the massive scale of public borrowing and lower demand for government bonds. “I think you’re going to get a meaningful slowing of the economy,” he added. Dalio said the state of US relations with China and Russia was also a “perfect storm” for government debt.

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