I will not fall as long as there is the specter of recession.The pandemic caused the dollar to strengthen, despite very low interest rates. There was a moment when it weakened, and that was at the very beginning, until January 2021. After that, it consolidated until June, and then only went up.
Why did the USD strengthen, even when rates were around 0%?
The crisis has the effect of strengthening the dollar, since all international payments and settlements are made in this currency. In addition, most of the loans that countries take out come from the US.
In other words: the demand for the USD was so high that some people began to wonder in 2021 whether there would be a shortage of this currency... For this reason, the FED could 'printed' $9-13 trillion, and the price went up anyway.
Something ends, something begins.
To make matters worse for all the countries that are borrowing massively in USD in chaos, the FED in March 2022 decided, to start raising interest rates, because inflation in the US started to go up.
Of course, the topic of inflation is thicker than just the massive printing. In 2022, Russia attacked Ukraine in February, starting a war that continues to this day. Conflicts are liked by oil, which soared to nearly $130 a barrel. This pushed up fuel prices, followed by the prices of almost every product in stores.
By February, the world had forgotten about the pandemic.
Late 70s and early 80s.
The whole situation is very similar to the late 1970s, when the Iranian Revolution was taking place, which created turmoil in the oil market. American oil then reached almost $40 a barrel. At that time, thanks to this situation and the Iran-Iraq war and the First Gulf War in the 1990s, the Soviets became the world's No. 1 oil producer.
All this caused inflation in 1980 in the U.S. to be close to 15%, and interest rates were raised to 20%.
Oil a bigger problem than 'printing'.
The prolonged conflict in Ukraine, sanctions on Russia, the still destabilized Middle East - protests in Iran, the Taliban in Afghanistan - and OPEC trying to cut oil production daily to drive the price above $100 a barrel... There are so many arguments for oil to rise in the medium term, and only the US fighting it actively by putting its reserves on the market.
This could be the main reason for double-digit inflation and high interest rates in the US.
Fed against the wall.
High rates and low inflation is a better short-term solution than too low rates and stagflation/high inflation. And yet, voices are breaking through to stop raising interest rates because it threatens recession - and it will, no matter how they want to defend themselves - and stop demand. But after all, that's the point; people are supposed to stop consuming maniacally and take out consumer loans to lower demand and help fight inflation faster. I believe the Fed, headed by Powell, are aware of this which is why they will not let up until inflation reaches 2%.
Long-term calm.
When Inflation starts to fall significantly, the FED will start cutting rates, and that's because Powell is looking hard at the 1980s crisis and Paul Volcker's conduct. One scenario I am considering is: RECESSION → Inflation starts to fall → Rate cuts → 2024-2025 economies get back on their feet and a new bull market begins. This is my long-term view. I wouldn't expect a big weakening of the USD during this time, as it will be supported by high interest rates, still strong demand and when inflation starts to fall, it will also support the currency. I would expect a weakening right after the recession ends. This was the case with the recessions of the 1980s, 2000 and 2007.
An uncertain, short-term future.
Currently, I don't know what to expect from inflation in the US - the next CPI reading on November 10. If it starts to fall now, it will increase the probability for the Fed to raise interest rates in December by 50 basic points rather than 75 basic points. The USD will weaken temporarily, but it will be hindered by oil, which is getting closer to $100 a barrel every day, and if it exceeds that level, the next CPI readings could be higher.
Scenarios.
November 10:
Inflation down → USD INDEX down → US Indices (SP, NQ, DJ, etc.) up → Precious metals up. Verification at next reading in December.
Inflation maintained or up → USD INDEX up → US Indices down (Sell Off) → Precious Metals down.
At this point, technically, the short-term USD INDEX is giving a signal for a decline, but a very weak one, so I am not set in either direction and take each scenario with equal probability.
Possible scenarios for the coming weeks, but I know that there are still levels below (102) that could be affected if inflation falls now.
P.S..
Unemployment has started to rise in the US, which is the first sign that raising interest rates is starting to work.
