Yesterday, the Federal Reserve announced the results of its April interest rate meeting, with the US dollar insisting on not lowering interest rates, and Powell also indicated that the possibility of raising interest rates has been temporarily ruled out. This result is consistent with market expectations, but looking at a series of recent actions by the United States, the strategic goal of the US dollar's interest rate hike may have changed. Have the Americans finally figured out the reason for the failure of the US dollar's interest rate hike and decided to launch the final battle?

The Fed's decision not to raise interest rates this time is normal, but after 11 interest rate hikes, the US dollar has maintained high interest rates for 9 months, and the purpose behind this may be quite unusual.

Why does the US dollar need to raise interest rates? In addition to solving its own inflation and pricking financial bubbles, there are usually three important purposes externally.

First, to harvest the world's wealth, second, to strike at the main opponents, and third, to maintain a strong US dollar.

Advertisement

In this round of US dollar interest rate hikes, the main opponents are Russia and China, and some people say it is the BRICS countries.

What's the result? Argentina, which once wanted to become a BRICS country, is barely alive and has defected to the enemy; Egypt, which has become a BRICS country, has almost collapsed in exchange rate and has also encountered big economic problems.

However, Russia has not fallen, and China has not encountered any problems, which is a big concern for the Americans.

Therefore, the Americans have recently tried to break up the cooperation between China and Russia, which is obviously very difficult. In this situation, will the Americans change their strategy?

In the long-term struggle, the Americans have accumulated rich experience. They are well versed in the routine of big countries fighting without breaking, that is, never break face verbally, but never be soft in actions, even if they have to tell lies.Therefore, it is quite likely that they are now changing their strategy.

With the interest rate hikes of the US dollar to date, Americans should have realized that the first and second objectives are doomed to yield very little.

Why can't the first two objectives be achieved? Because the US dollar is now too weak.

Before this round of US dollar interest rate hikes, in February 2022, the global payment share of the US dollar had already dropped to a dangerous level of 38.85%, almost the lowest point since the US dollar system was rebuilt in the 1970s.

In addition, in the past two years, there have been many out-of-body circulations, such as the widespread currency swaps and local currency settlements, the Renminbi CIPS system, and the multi-central bank digital currency bridge project (mBridge) cooperated by countries such as China, Thailand, and the United Arab Emirates, etc.

Therefore, the actual proportion of the US dollar will only be lower, and it has reached an unprecedentedly weak state.

The United States is a highly financialized country, and the status of the US dollar is very important to it, even a matter of life and death, so this matter must be firmly protected.

In the past, when the US dollar payment share reached 70% or even higher, once the US dollar raised interest rates and contracted liquidity, it meant that it would affect more than 70% of global transactions.

In addition, at that time, the proportion of US dollar debt in global debt was also very high, and of course, US dollar interest rate hikes were invincible.

In 2022, the US dollar payment share dropped to about 38%, and the US dollar raised interest rates and contracted liquidity, but the Japanese yen and the Renminbi did not raise interest rates, and the euro was not very active, and these currencies can completely take advantage of the opportunity to fill the vacancy left by the US dollar.Especially with the Japanese yen at a negative interest rate, it has filled a significant gap in Southeast Asia in recent years for dollar investments and payments, while the Chinese yuan has played an important role in third-world countries.

This, of course, cannot be said to be a deliberate attempt by the yen and the yuan to undermine the dollar; rather, it is the inherent laws of economics at work.

When the dollar raises interest rates, everyone is short of money, naturally they will look for funds all over the world. At that time, their assets have already been suppressed to a low level by the dollar's interest rate hikes, and they are brought out to seek investment in yen and yuan; who would be foolish enough to turn down the opportunity to make money?

Therefore, our foreign investment has grown rapidly in the past two years.

According to statistical data from the Ministry of Commerce and the State Administration of Foreign Exchange, in 2023, China's total direct investment in all industries abroad was 1041.85 billion yuan, a year-on-year increase of 5.7%.

Among them, domestic investors in China made non-financial direct investments in 7,913 foreign enterprises in 155 countries and regions around the world, with a cumulative investment of 916.99 billion yuan, an increase of 16.7%.

So, for the dollar to regain its dominance, the main targets should include two aspects.

The first is to reclaim the dollar's payment status, possibly aiming to rise above 50%.

The second is to boost the US Dollar Index, possibly aiming to rise above 110.

Looking at these two goals, what is the current situation?In March 2024, the top five international payment currencies are as follows: US Dollar at 47.37%, Euro at 21.93%, Pound Sterling at 6.57%, Chinese Yuan at 4.69%, and Japanese Yen at 4.13%.

However, the US Dollar Index has been less than satisfactory. After the start of this round of interest rate hikes, the index briefly rose above 110 in October 2022, only to decline steadily afterward. It fell below 100 in July 2023 and is currently hovering around 105.

Seeing that further interest rate hikes are not effective, and even maintaining high interest rates fails to increase the payment share and the US Dollar Index, the Americans have initiated the endgame: not lowering interest rates while directly suppressing competitors.

Recently, international short sellers have aggressively targeted the Japanese Yen, causing it to depreciate significantly and its share in international payments to decline.

They also intended to bring down the Chinese Yuan in the process, but were unsuccessful.

If they could simultaneously strike against the Euro, Pound Sterling, and Chinese Yuan, causing a significant devaluation of these major currencies, their share in international payments would decrease.

At the same time, this would also mean that the US Dollar appreciates against them, leading to an increase in the US Dollar Index.