Intermarket Analysis Throught Macro and Technical Methods
Here you’ll find: A deep dive into the current situation of the dollar.
• The core components that define a global reserve currency.
• Real interest rates across major currencies for a relative strength comparison.
• Camparing F.I.A.T currencies.
• The asset/variable that best reflects this dynamic in today’s markets.
• Key attributes of a proper hedging strategy.
• A full technical setup—unlike other times, this includes the theory behind each technical tool used.
• A potential vehicle to trade this macro situation.
#57 A deep dive into the current state of the dollar
The bond market and the dollar. What’s driving it, what it’s signaling, and why it matters now more than ever
When we analyze the dollar as a reserve currency, we do so in relative terms across three entirely different dimensions:
The Dollar and the Components of the “Global Reserve Currency” Concept
Its role as a safe haven in times of crisis.
Its role as a reserve asset—both in the portfolios of central banks and as a store of value for retail savers.
Its role as the dominant currency in global trade.
These are three distinct functions, each driven by different dynamics.
The dollar and Current Context of Global Monetary Policies
If we’re going to make comparisons, it’s critical to understand the monetary policy stance in each country behind these currencies.
To keep things simple, we’re focusing on:
The current stance of monetary policy
The underlying trend
The real interest rate in each economy
The dollar and core monetary policy trends over the study period—from October 2023 to today
Since October, central bank moves have shaped very different real interest rates across economies.
That’s what we summarize—and expand on—in the final column.
Real Interest Rates
Now we can make a more grounded comparison.
As always in economics, we deal with flows and stocks—or, put differently, historical levels and current trends.
The Dollar vs. Gold
We covered this in the last episode, so here’s a quick refresher.
Gold vs Euro
Gold vs Yen
Gold vs. Swiss Franc (CHF)
A direct comparison between two classic safe havens—one hard asset, one fiat currency.
A historical store of value, the Swiss franc is also losing ground against gold—though at a slower pace.
Gold vs. Canadian Dollar (CAD)
A warning sign: CAD weakness
Gold vs. Australian Dollar (AUD)
AUD weakness as well
The Dollar vs. Gold: Key Takeaways
Despite different real rate environments, all fiat currencies are depreciating against gold. This represents a general value hedge.
Within that broad trend, relative flows between value and real rates reveal strength and weakness.
Flows are moving toward gold from all currencies—yet the dollar appears to be the weakest when comparing each economy’s real rates.
VS. Other Fiat Currencies
Looking at the dollar Index from a technical perspective, since October 2023 it’s true that it has lost a historically important support. However, when you break down the components of the Dollar Index, the story looks quite different.
Euro vs Dollar
Yen vs Dollar
Swiss Franc vs Dollar
Australian Dollar vs Dollar
Canadian Dollar vs Dollar
There’s a flow out of the dollar and into the euro and Swiss franc, despite having the carry working against it. That’s not the case with other currencies.
The dollar currently has a higher real interest rate than the rest. All else being equal, this should strengthen it against other currencies. But that’s not happening—revealing a weakness in the dollar.
It’s losing value against two classic safe-haven currencies—like the euro and the Swiss franc—but not against commodity-linked currencies like the CAD and AUD.
The dollar as a reserve currency
Held both in central bank reserves and by retail investors.
Here’s a historical look at dollar-denominated money markets. Retail
The dollar and current trends in dollar-denominated money markets. Retail
The Dollar as a Reserve Currency for Central Banks – Global Data (2023–2024)
Source: The International Monetary Fund (IMF), in its COFER report (Currency Composition of Official Foreign Exchange Reserves)
According to the IMF’s COFER report: Around 58–60% of global central bank reserves are denominated in U.S. dollars (2023–2024). This figure has gradually declined since 2000 (when it exceeded 70%), yet the USD remains the world’s dominant reserve currency.
The Dollar in Global Trade
As of 2024, roughly 54% of global export invoices are issued in U.S. dollars—even in transactions where the U.S. is not directly involved.
Conclusions
Stock (Historical) Analysis
The dollar’s role as a reserve currency—across all three functions—has been gradually declining, especially in terms of foreign central bank holdings.
Still, the dollar remains by far the most widely held reserve asset globally, both by central banks and retail investors.
Flow Analysis
It’s clear that, given current real interest rates and the trend since October 2023, the dollar has been losing ground—particularly as a safe haven compared to the Euro and Swiss franc.
It’s also the currency with the strongest outflow into gold, highlighting its weakening position since October.
The dollar and where the market is speaking the clearest
Dollar correlation with the 30-year dollar yield
This is the clearest message—both in terms of stock level and current trend, which is falling at an accelerating pace.
Basically, long-term inflation expectations are becoming unanchored. This has major implications for the real economy, both immediately and over the long run.
The Fed and long-term rates
As we’ve seen, the correlation between short-term rates and the Fed Funds Rate is strong—those are heavily influenced by the Fed. But as we extend the time horizon, that correlation fades. We’ve shown this repeatedly on the blog, especially with the 2-year rates.
The Fed and the dollar
The Fed cannot allow long-term expectations to become unanchored. There are many reasons for this, tied to the real economy and monetary policy—but above all, to its most important asset: credibility.
It will be another key factor in its interest rate policy.
In the upcoming episodes, we’ll dive deeper into the correlation between short-, medium-, and long-term interest rates. For those less familiar with the topic, here are two foundational articles already available on the blog. I highly recommend them if you need a refresher.
Setups: How do you trade a macro situation of this magnitude?
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That’s a wrap—for now. Keep your hedges sharp. Until next time,
Martin