But it was pointed out again that tariff policies may stimulate both inflation and unemployment, thereby dragging down economic growth. Given the upcoming trade negotiations between China and the United States and the uncertain prospects of the global tariff war, the Fed will continue to remain cautious and wait-and-see. Despite Trump’s constant pressure, Powell made it clear that there will be no preventive rate cuts.
The interest rate market currently expects the Fed to have room for three rate cuts this year, and the first rate cut may be postponed to July (55% probability) rather than the previously expected June (20%).
The economy is still okay but the outlook is worrying
Powell’s concerns about the economic outlook are not unreasonable. Although the 0.3% year-on-year decline in the first quarter of the United States was caused by distorted import data, last week’s non-farm data was better than expected, and corporate earnings reports were also okay, but these are data reflecting the past.
The worst stage of trade policy may have passed, but the challenges facing the economic outlook may have just begun. The impact of tariffs on the real economy may gradually manifest in the coming months, so the market will be particularly sensitive to economic data in the coming weeks and months. Prior to this, indicators such as the small business and consumer confidence index (see figure below) have already fallen sharply. The probability of the United States falling into recession this year is still above 50%, and what is even more frightening is the emergence of economic stagflation.
“De-dollarization” may have just begun
The US dollar index fell below 98 last week, hitting a three-year low. The 8% decline this year is mainly affected by tariff policies and market expectations. As the tariff issue gradually cools down, the index stabilizes near the 100 mark, and the Fed’s hawkish meeting statement may help it to carry out technical repairs.
In the short term, economic data and whether Asian countries continue to sell dollars are uncertainties facing the index rebound.
In the medium and long term, the weak or even recession of US economic growth is a negative for the US dollar. More importantly, the escalation of the tariff war also means a reduction in the trade volume of countries around the world with the United States, that is, a reduction in the demand for the US dollar. Once The decline in the US trade deficit will also reduce its service and financial account surpluses, which means that global investors will be forced to reduce their risk exposure to US dollar assets (including US bonds and US stocks), and factors such as the US debt crisis, credit crisis, and geopolitical risks may accelerate this process. Buffett even warned that he would not invest in a currency that is “going to hell.”
Looking back at history, the current US dollar index is at a historical high second only to 1985 and 2001. Compared with that time, the current US GDP share, trade or manufacturing share cannot be compared with those years. The diversification of reserve currencies may be discussed more and more.
Gold bulls are back
After two weeks of brief adjustments, gold has exploded again this week and returned to $3,400. Although bullish sentiment is no longer as extreme as it was in April, bulls are still in control now.
The news of Sino-US trade negotiations and the situation in India and Pakistan are short-term disturbances for gold prices. However, after breaking through the oscillation range of 3,360-3,400, gold prices are expected to hit the historical high of $3,500 in the short term. If the high fails to form a double top structure, it suggests that gold prices may start a phased correction.
It is worth noting that the current gold price is about 24% higher than the 200-day moving average and is in the final acceleration stage of the upward trend since 2023, which is similar to the trend in 2011.
The recent weakness of the U.S. dollar is naturally good for gold, and in the context of accelerating “de-dollarization”, gold will continue to be a firm choice for central banks, institutions and individual investors around the world. The latest data shows that the People’s Bank of China has increased its gold reserves for six consecutive months. Goldman Sachs raised its target price for gold in 2025 to $3,700 under the baseline scenario.
The Federal Reserve is facing a head-on confrontation, and gold remains strong
But it was pointed out again that tariff policies may stimulate both inflation and unemployment, thereby dragging down economic growth. Given the upcoming trade negotiations between China and the United States and the uncertain prospects of the global tariff war, the Fed will continue to remain cautious and wait-and-see. Despite Trump’s constant pressure, Powell made it clear that there will be no preventive rate cuts.
The interest rate market currently expects the Fed to have room for three rate cuts this year, and the first rate cut may be postponed to July (55% probability) rather than the previously expected June (20%).
The economy is still okay but the outlook is worrying
Powell’s concerns about the economic outlook are not unreasonable. Although the 0.3% year-on-year decline in the first quarter of the United States was caused by distorted import data, last week’s non-farm data was better than expected, and corporate earnings reports were also okay, but these are data reflecting the past.
The worst stage of trade policy may have passed, but the challenges facing the economic outlook may have just begun. The impact of tariffs on the real economy may gradually manifest in the coming months, so the market will be particularly sensitive to economic data in the coming weeks and months. Prior to this, indicators such as the small business and consumer confidence index (see figure below) have already fallen sharply. The probability of the United States falling into recession this year is still above 50%, and what is even more frightening is the emergence of economic stagflation.
“De-dollarization” may have just begun
The US dollar index fell below 98 last week, hitting a three-year low. The 8% decline this year is mainly affected by tariff policies and market expectations. As the tariff issue gradually cools down, the index stabilizes near the 100 mark, and the Fed’s hawkish meeting statement may help it to carry out technical repairs.
In the short term, economic data and whether Asian countries continue to sell dollars are uncertainties facing the index rebound.
In the medium and long term, the weak or even recession of US economic growth is a negative for the US dollar. More importantly, the escalation of the tariff war also means a reduction in the trade volume of countries around the world with the United States, that is, a reduction in the demand for the US dollar. Once The decline in the US trade deficit will also reduce its service and financial account surpluses, which means that global investors will be forced to reduce their risk exposure to US dollar assets (including US bonds and US stocks), and factors such as the US debt crisis, credit crisis, and geopolitical risks may accelerate this process. Buffett even warned that he would not invest in a currency that is “going to hell.”
Looking back at history, the current US dollar index is at a historical high second only to 1985 and 2001. Compared with that time, the current US GDP share, trade or manufacturing share cannot be compared with those years. The diversification of reserve currencies may be discussed more and more.
Gold bulls are back
After two weeks of brief adjustments, gold has exploded again this week and returned to $3,400. Although bullish sentiment is no longer as extreme as it was in April, bulls are still in control now.
The news of Sino-US trade negotiations and the situation in India and Pakistan are short-term disturbances for gold prices. However, after breaking through the oscillation range of 3,360-3,400, gold prices are expected to hit the historical high of $3,500 in the short term. If the high fails to form a double top structure, it suggests that gold prices may start a phased correction.
It is worth noting that the current gold price is about 24% higher than the 200-day moving average and is in the final acceleration stage of the upward trend since 2023, which is similar to the trend in 2011.
The recent weakness of the U.S. dollar is naturally good for gold, and in the context of accelerating “de-dollarization”, gold will continue to be a firm choice for central banks, institutions and individual investors around the world. The latest data shows that the People’s Bank of China has increased its gold reserves for six consecutive months. Goldman Sachs raised its target price for gold in 2025 to $3,700 under the baseline scenario.
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