International financial markets are facing an unprecedented situation as the value of the US dollar plummets at an alarming rate, while the price of gold, a safe-haven asset, has soared to record highs. In the Tokyo foreign exchange market, the yen/dollar exchange rate broke through the 140 yen level during trading, falling to the 139 yen range, the lowest in seven months since September of last year. The yen/dollar exchange rate, which was above 150 yen just last month, has continued its steep decline this month.
The dollar's weakness is not limited to the yen but is widespread against major currencies such as the euro and the British pound. The dollar index, which measures the value of the dollar against a basket of six major currencies, fell to 98.134, the lowest level since late March 2022, marking a nearly 10% drop since the beginning of the year.
Conversely, the spot price of gold, a 대표적인 safe-haven asset, surged to an all-time high of $3,500.1 per ounce during the day. This marks a vertical surge following the first break above $3,400 the previous day, with a 33% increase since the start of the year. The June gold futures price also surpassed the $3,500 mark for the first time. An unusual situation is unfolding where even US Treasury yields, which typically have an inverse relationship with gold prices, are rising. The benchmark 10-year US Treasury yield, which was at 3.85% at the beginning of the month, briefly soared to 4.58%. A rise in Treasury yields signifies a decrease in Treasury prices, indicating that investors are strengthening their risk-averse sentiment.
The prevailing analysis attributes this sharp decline in the dollar's value and the surge in gold prices to President Trump's attempt to oust Federal Reserve (Fed) Chairman Jerome Powell. The Fed, established to prevent the recurrence of economic depressions following the Great Depression of the 1930s, is an independent institution that has averted several economic crises. Its chairman is often referred to as the "economic president" due to their significant influence. The market views President Trump's move as a dangerous attempt to undermine the Fed's independence and increase economic uncertainty. Consequently, investors are selling off dollars and flocking to safe-haven assets.
Since taking office, President Trump has strongly asserted his commitment to defending the dominance of the dollar, stating that he would "secure commitments from overtly hostile nations to abandon their efforts to replace the dollar with new or existing currencies." He even threatened to impose 100% tariffs on these countries, warning them to "say goodbye to the thriving American market." However, experts criticize President Trump's anachronistic retaliatory tariff policies and pressure on the Fed as actions that are actually weakening the dollar's hegemony. Financial circles both domestically and internationally are expressing cynicism, with some commenting that "Trump is accelerating the end of the dollar's dominance, which was expected to last for another 30 years, by 10 to 20 years."
This rapid depreciation of the dollar and the soaring gold prices starkly illustrate the instability of the global economy, raising serious concerns about the future direction of international financial markets. If the unpredictable policy stance of the Trump administration continues, the weakening of the dollar's status, along with significant turmoil across the global economic system, is a growing possibility.
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