Today is Fed day and everybody will be watching the Powell press conference

Today is Fed day and everybody will be watching the Powell press conference. Before then, this morning the Bank of Canada also makes a decision. In both instances, no change is forecast but what the govs say may well contain a surprise or two.

Also on the calendar is UK PM Starmer’s trip to China and important US company earnings reports, including Meta, Microsoft, Tesla.

Again we are stuck with the usually thankless task of reconciling market sentiment with political events. We knew all along that Trump favors a weak dollar because he thinks it will promote exports, and doesn’t understand the offsetting capital inflows. Or if he does understand, he arrogantly assumes the US will get them whatever the dollar level. Actually, so far he has been right about that.

We were a little surprised, therefore, to see the extent of the dollar-selling flood, among the biggest in years. It’s almost as though Japan opened the door, shouted “fire,” and the crowd rushed for the exit.

One question is how the Fed will interpret the Trump comments and the market’s response. We didn’t get an inflation surge from tariffs but the brainy Fed economists will surely advise the govs that a substantially weaker dollar means rising import prices and thus inflation. Note that quite often when a big relevant news event comes just ahead of the Fed meeting, the Fed has already made up its mind and that new factor is ignored. Besides, imports make up a smallish portion of what gets counted in inflation data, about 13%. Maybe it’s okay to ignore it.

Reuters remarks that the response to the surging euro in Europe is starting to emerge. “Austria's central bank boss Martin Kocher warned the ECB would have to react if the euro appreciated further.” The ECB has long admitted it watches the euro like any other top economic factor. Mr. Draghi was especially frank about it. We don’t smell any whiff of intervention or rate change to combat it, but let’s just wait and see.     

Reuters’ savvy reporter Dolan points out that “Perhaps the biggest concern about another sharp slide in the dollar, which has seen one-month implied currency volatility surge to its highest since July, is that it unnerves gigantic foreign holdings of US assets.”

We know from earlier reports that dollar-hedging was going on while at the same time, foreign investors kept buying. “The prospect of unhedged U.S. stocks and bonds suffering a 10-20% dollar hit may well destabilize that unprecedented investment imbalance - now a U.S. liability to the rest of the world of about 90% of GDP. Japanese investors are the single biggest overseas holders of U.S. Treasuries and European investors hold $8 trillion of U.S. stocks and bonds.”

Dolan includes comments from the excellent Stephen Jen of Eurizon SLJ Capital, who says “the market is embarking on a second leg of a structural dollar correction - one which he thinks can coincide with buoyant growth and stock markets, and still be consistent with Washington's aggressive trade stance. ‘In 2025, the dollar only experienced roughly ‍one-third of its structural correction, in my guesstimate. The next third will likely come mainly against Asia, (and) euro/dollar may rise in sympathy.’"

This would account for the dollar mostly hanging on last year and losing only about 8%.  “But juggling fresh dollar weakness, brisk growth, high debt and Fed pressure alongside the biggest long position in U.S. assets in history may be a hard act to pull off without triggering broad market ructions or extreme volatility.”

Bloomberg points out that the dollar is still 35% above the 2011 level. Like Reuters, Bloomberg brings up the idea of a Plaza Accord-like Mar-a-Lago accord. The idea is that all the other big currency names agree to a dollar devaluation. Everyone seems to forget that (1) only Japan took real policy action to promote the goal and (2) the Plaza Accord went too far and had to be reversed a few years alter with another accord.

“But even if a weaker dollar suits Japan for now, it's hard to see why Europe or China would sign up for a forced jump in their own currencies — especially given the rancorous state ‍of trade and political relations with the Trump administration.”

We say the biggest real problem is sitting in the White House imagining he is a god. Yesterday Trump said he can manipulate the dollar: “I could have it go up or go down like a yo yo.” He said he didn’t like the idea, but Trump lies. He loves it. “If you look at China and Japan, I used to fight like hell with them, because they always wanted to devalue their yen. You know that? The yen and the yuan, and they’d always want to devalue it. They devalue, devalue, devalue. And I said, not fair that you devalue, because it’s hard to compete when they devalue. But they always fought, no our dollar’s great.”

Tigers and stripes. He will do it again, on a whim. He likes the oversized response.

As for the economy, the Conference Board consumer confidence numbers were just awful and in keeping with JOLTS (see above). But there is an offset and from a surprising direction—tax refunds will be bigger for the average worker this time. “The average refund increase of $1,000 is about a third higher than last year’s level of around $3,200. The poor get almost nothing, and the top gets the most, but middle and upper-middle income families will see around $1,000-$2,000.”

With a small and falling savings rate, this money is definitely going into the data category “consumer spending.”

Forecast

We have been worried about the usual retreat after a giant breakout but as noted above, breakouts of this magnitude tend to continue. Caution is still warranted as a general rule (don’t bet the ranch).  

Overall sentiment toward the US and the dollar is deeply negative and can become more so—tariffs, lies, Venezuela, Greenland, lies, yo-yos. It’s astounding that the equity and bond gangs are so easily able to ignore geopolitics, lies, and the dollar.

Food for thought

It’s very early in the year to have hard data on central bank purchases of gold but various sources, including Reuters, name China, Poland, Brazil, Turkey and Indonesia as buyers. Also, the Czech Republic, Uzbekistan and Kazakhstan. A wide distribution, to be sure, and all due to uncertainty generated by the incompetent US president. 

The new forecast is $6,000, although Goldman has $5400.  

We want to know whether central banks intend to hold the gold forever or if ever give in to the temptation to take profit or exit on a pre-set stop-loss. We can expect both from those ETFs and other private gold buyers. We are unable to find anything useful on “central bank gold holdings management.”

Just for the hell of it, let’s assume buyers started in Q4 2025. The Oct 1 price was $3865. Now subtract a 20% loss, to $3092. What is the probability of $3092? That would be about a 60% drop from about $5000 today. Even if they all use a 20% moving stop, at $6,000, that’s $4800, so leaving them with a nearly $1000 gain.

Net-net, even if the bottom falls out of gold, the buyers today are in a can’t-lose position.

More food for thought

The Census Bureau released the newest data—and in 2025 the US population grew at one of the slowest rates in history. The increase is 1.8 million to 341.8 million as of July 1, or a growth rate of about 0.5%. It was lower during Covid. 

Immigration plunged by more than 50% y/y or 1.26 million. Under Biden in 2024, it had been 2.73 million, a record high. This is what got Trump elected. The Census Bureau estimates immigration will fall to about 321,000 for the current on June 30, lower than during the pandemic and one of the lowest ever.

The NYT: “A sharp drop in the birthrate also contributed to the slowdown in population growth. The birthrate has been falling since the Great Recession in 2008, and new births outpaced deaths by only about 518,000 in the latest period. That is higher than during the peak of the Covid pandemic, when deaths were soaring, but is still extremely low by historical standards.”

“… from 2010 to 2020, immigration made up about 40 percent of the overall population growth, while births supplied about 60 percent. But since 2020, as the birthrate has declined, immigration has comprised a larger and larger share, and now accounts for around 80 percent of overall growth.”

This slowdown in birth rates is a global phenomenon that has been reviewed for over a decade. Russia and Japan are two of the places with birth rates below replacement.

US Political Tidbit: One of the weirder developments in the struggle of the public vs. murderous ICE agents is the right to take videos. Courts are sometimes backing up the Justice Dept’s assertion that any and all photo-taking of agents is interference with official duties and banned. We need a law like the Second Amendment (the right to bear arms) that gives citizens the right to bear a cellphone camera. It’s always interesting to note how the Founders gave latitude for modernization.