Recently, the cryptocurrency market has been bustling, with BTC prices hitting new highs, while the US dollar, which has always had a commanding presence in financial markets, finds itself in a perplexing situation. The dollar initially continued to decline, but after a hard-won rebound, many investors are questioning whether this is just a 'last gasp' before a steep drop. Trump's attacks on the Federal Reserve have never ceased, and discussions about a September rate cut have become rampant. What financial secrets lie behind this? Today, let’s delve deeper into the analysis.
BTC hits new highs, but is the dollar 'struggling to survive'?
Experts from Deutsche Bank, including Michael Pfister, point out that the dollar previously fell too sharply, and this rebound is just a technical adjustment. Like someone who has been working late nights, no matter how strong they are, they need rest and adjustment. Recently, the dollar index (DXY) has dropped to a new low in a month, and short-sellers have profited handsomely. At this time, some investors choose to cover their positions, which is a normal short-term market operation.
However, this seemingly 'last gasp' rebound is actually very fragile. The expectations for rate cuts from the Federal Reserve hang over the dollar like a cloud, refusing to dissipate. Trump continues to pressure Fed Chairman Powell, stating that Powell should be dismissed. Under such internal and external pressures, it is extremely difficult for the dollar to completely turn around and return to its former peak.
The Federal Reserve's rate cut in September, a 'death knell' for the dollar?
Deutsche Bank boldly predicts: A rate cut by the Federal Reserve in September has become a foregone conclusion! Currently, the market's expectation probability for a September rate cut exceeds 70%. Although Powell claims to 'make decisions based on data,' the actual data performance undermines the persuasiveness of his words. Inflation is gradually slowing, and the job market is also beginning to cool; all signs indicate that a rate cut is the trend of the times, just waiting for the Federal Reserve to make a formal announcement.
To put it vividly, the Federal Reserve now resembles a hesitant decision-maker, saying they will consider it further while they may already be prepared to cut rates internally. Therefore, the current rebound of the dollar is merely a brief struggle before the 'judgment' of rate cuts is announced; it appears prosperous but is actually fleeting. Once the rate cut in September is realized, the dollar will undoubtedly suffer a heavy blow.
Trump's knife twist, the dollar worsens.
Trump has recently unleashed a barrage of criticism against the Federal Reserve. He bluntly stated, 'Powell should step down.' Although he does not have the legal authority to directly fire Powell, his remarks have still caused considerable market upheaval. He even threw out the shocking statement that 'not cutting rates is treason,' leaving many astonished.
Trump's political pressure combined with the market's strong expectations for a Federal Reserve rate cut is like a double-edged sword, delivering a dual blow to the dollar. In this situation, even if the dollar wants to rebound, it faces numerous difficulties. Trump's ongoing pressure undoubtedly makes the dollar's situation even more challenging, and its future trajectory is full of uncertainty.
What should traders do? Five Wood offers you three pieces of advice.
Facing such a complex and ever-changing financial market, how should different types of investors respond?
- Short-term players: The current rebound of the dollar is like a 'tail end market.' The most profitable part has already passed, and although the tail still has some value, the difficulty of operation is high and the risks are great. Therefore, short-term players can take advantage of this rebound to make a small profit, but they must be sure to take profits in time and not be greedy; otherwise, they risk being 'harvested' by the market.
- Long-term investors: It is important to understand that during a rate-cutting cycle, the status of the US dollar will significantly decline. Gold, Bitcoin, and non-US currencies are more promising investment choices. Historically, these assets tend to experience substantial increases during rate-cutting cycles, allowing investors to strategically position themselves for long-term holding and await generous returns.
- Spectators: If you haven't participated in investing yet, just grab a small stool and watch this 'financial drama' between Trump and Powell comfortably. The excitement of this drama is no less than the volatility in the cryptocurrency market, and it can give you a deeper understanding of the political maneuvering in financial markets, which might come in handy in the future.
This rebound of the dollar is very similar to the 'dead cat bounce' phenomenon in the cryptocurrency market. Even if it rebounds high in the short term, it will ultimately return to a downward trajectory. When the 'sword of Damocles' in the form of a rate cut falls in September, everyone must remember: do not go against the Federal Reserve's decisions, and do not easily trust Trump's words. In the investment market, all successful investments begin with a respect for risk.
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