The Federal Reserve's interest rate decision meeting has been seen as a bellwether by financial markets. However, at the 2 May meeting, Fed Chair Jerome Powell's vague remarks on the US dollar interest rate sparked widespread speculation about his true intentions.
Compared with his rhetoric, the market is more concerned about the mixed emotions revealed by Powell's speech, which seems quite tangled and uneasy, as if he has a major burden.
Fed Chair Jerome Powell
The unusual performance of this financial leader, who has always been known for his stability and calmness, attracted a lot of attention at this meeting.
Then, on May 3, the U.S. Department of Labor released data that provided some clues. The data showed that the number of new jobs in the United States in April was only 175,000, a new low since October 2023 and well below market expectations.
It is a surprise that the previously promising US job market has suddenly experienced such a sharp decline
At the same time, rising unemployment and weak wage growth suggest a gloomy outlook for the U.S. economy, far from previous boom expectations.
In the international currency market, the dollar has also suffered a "backstab".
Wall Street investment banks have set their sights on the Japanese currency, intending to stir up the entire Asian monetary system through the yen and repeat the '98 financial crisis in order to harvest Asia's high-quality assets.
In the early days, major Asian currencies such as the renminbi, South Korean won, Vietnamese dong, and Indian rupee fell sharply. However, since 29 April, the CNH has rebounded strongly for five consecutive days, surging from 7.27 to 7.15, leading Asian currency markets to stabilise.
At the same time, the yen continued to depreciate, and even fell below the psychological mark of 160 at one point. This put a lot of pressure on the Japanese. Faced with such a predicament, the Japanese could no longer bear it.
Ignoring the dissuasion and pressure of the United States, they resolutely decided to come to the rescue of the market and intervene in the yen exchange rate. According to internal sources at the Bank of Japan, they may have secretly carried out more than three operations, investing about 9 trillion yen (more than $70 billion) to turn the tide.
The move caught Wall Street off guard. What seemed to be a winning game suddenly became tricky. In order to avoid greater losses, they had to retreat in advance.
In this context, what conditions does the Fed need to meet to stabilize the market and avoid risks?
The first condition is to rebuild the dollar's payment supremacy. Specifically, the US dollar's share of global payments needs to recover to at least 50% to ensure that the dollar regains its position as the world's dominant payment currency.
Second, the dollar index needs to be strengthened. The index is seen as a "health barometer" for the US dollar. The Fed expects it to rise back to at least 110 to demonstrate the strength and soundness of the dollar.
However, achieving these two conditions is not an easy task. The seemingly simple operation of cutting interest rates actually affects the whole body. The slightest carelessness may have an impact on U.S. stocks, commercial real estate and other markets, and even trigger a sharp depreciation of the U.S. dollar.
In order to achieve these goals, the United States began to seek the support of "allies", hoping to be helped by major currencies such as the yen, the euro, the pound sterling and the yuan. It's like a "diplomatic contest" between currencies.
In April this year, U.S. Treasury Secretary Janet Yellen and Secretary of State Antony Blinken visited China in an attempt to enlist China's support. However, the results did not turn out as they hoped. We didn't give them the cooperation they expected, and we couldn't.
Because to cooperate with them means to actively depreciate the yuan to improve the dollar index. This is a risky operation. Once the international bears take the opportunity to short the RMB, or even the United States and the international bears join forces to attack the RMB, it will cause irreparable losses.
Therefore, we cannot easily try such an operation, let alone trust the United States at this critical moment and hand over the fate of the yuan to them.