So far, the behavior of the dollar has been very similar to 2015 when the dollar rallied to the 1.618% Fibonacci extension and then was range bound — as you can see in the pink line. A copy of the pattern with tops matched up.
I expect the dollar to remain range bound as the financial system recovers slowly from the damage done by the acute dollar shortage. We can see this recovery in many currency charts, like the Hong Kong dollar, the Japanese yen and the euro.
U.S. Treasury yields for 10-year, 5-year and 2-year with the Fed Funds target range
We spent a few minutes discussing the above chart. For the first time in this cycle, the 5- and 10-year Treasury yields have entered the Fed Funds target range. Not only that, but the 10-year has fallen below the reverse repurchase agreement (RRP) rate of 3.8% and the lower limit of the Fed Funds of 3.75%.
This is a major change and a major component of my analysis of the Fed’s monetary policy going forward. If rates stop listening to Jerome Powell, the Fed will be forced to pivot.
Federal Reserves Digital Dollar Pilot
We were surprised to hear of the Federal Reserve’s pilot program with banks going forward to test a new dollar CBDC. We have been quite clear on “Fed Watch” that we do not expect the Fed to approve the use of a CBDC, instead they will legitimize USD stablecoins, bringing them into the Federal Reserve system.
I read from
an article on The Street, however, during the show I ran out of time to cover it in detail. I recommend reading it in full.
“The proof of concept (PoC) project will test a version of the regulated liability network design that operates exclusively in U.S. dollars where commercial banks issue simulated digital money or “tokens” — representing the deposits of their own customers — and settle through simulated central bank reserves on a shared multi-entity distributed ledger.”
I don’t blame you if you don’t understand that word salad. CK and I are bitcoin specialists and we can barely follow it. Nothing in this pilot program shows that the Fed is close to a CBDC. We maintain our reasoning that Jerome Powell and the Fed will not go down this road, but they have to move quickly to make their intentions clear and bring USD stablecoins into the fold or else the next chairman might follow along with globalist leanings.
I also quote from Vice Chair Randal Quarles’ 2021 speech about CBDCs where he demonstrates a firm grasp of the CBDC game. We recommend reading it in full, as well.
“I emphasize three points. First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks.”
Lastly, we cover the G20, but to be honest, we don’t have time to do it justice.
Here is a link to The Guardian’s five takeaways from the G20 meeting.
This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.