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Has the USD peaked?

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What's new?

More and more financial institutions predict a U.S recession; Goldman Sachs predicts a 30% probability of recession this year due to tightening monetary policy. Historically, the dollar performs well during stress; as the world reserve currency, investors rush to buy USD and dump other currencies such as EUR, AUD, and GBP, considered pro-cyclical currencies. When the recession is triggered, FED will have to enter in easing cycle again, and investors will return to risk-on mode favoring all currencies at the expense of the greenback. There are two possible outcomes for the USD in the coming month :

  1. The dollar will weaken if the global economic outlook improves despite monetary tightening.
  2. The dollar will keep strengthening if the U.S enters in recession

What is the best stablecoin? It’s called Hong Kong Dollar!

After the bankruptcy of Terra Luna, the algorithmic stablecoin, it is worth exploring how the HKD can maintain a stable value with USD for over 38 years! So what are the main differences with UST?

  1. The HK monetary base (all coins and notes in circulation + aggregate balances + Exchange fund bills) are 110% backed by US dollar asset.
  2. Interest rates float freely, while HKMA fixing exchange rate inside the range 7.75/7.85, it needs to let interest rates flow to reach new market equilibrium.

As opposed to HKD, UST was undercollateralized as the Terra Foundation, which acts as the network’s treasury, worth US$ 3B in BTC, far less than terra and Luna combined capitalization before the peg crashed. And even more alarming, users of the coins were rewarded 20% yields for depositing in one of the Terra ecosystem protocols (Anchor). Who can be stupid enough to think that the 20% promised can be generated by proper growth? Of course, it has to come from new joiners…

What’s in the pipe?

  • Fed Chair Jerome Powell among slate of Fed speakers on Tuesday
  • Reserve Bank of Australia releases minutes of its May policy meeting Tuesday.
  • G-7 finance ministers and central bankers meeting Wednesday
  • Eurozone, UK CPI Wednesday
  • Philadelphia Fed President Patrick Harker speaks Wednesday.
  • China loan prime rates Friday

FX rates

USD/JPY @ 129.27 - bullish trend

EUR/USD @ 1.0455 - Bearish trend

GBP/USD @ 1.2362 - Bearish trend

AUD/USD @ 0.7010 - Bearish trend

USD/CNH @ 6.7719- Bullish trend

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