Categories
News
Date
2024-10-15
Swiss Central Bank Loses $970B, US Fed $350B Vanishes
01, Dramatic Drop in the US Dollar
Investors who follow the international financial markets might be astounded by the continuous decline of the US Dollar Index.
The US Dollar Index is on the verge of breaking below 100 points, with the lowest intraday trading level having fallen to 101.76.
What's even more unimaginable is that the more the US raises interest rates, the faster the US Dollar Index falls.
In early November last year, the US Dollar Index was as high as 113.16. Since then, the Federal Reserve has raised interest rates twice, totaling 125 basis points, yet the US Dollar Index keeps falling.
Now, the Federal Reserve is set to raise interest rates by another 25 basis points, but even with this clear expectation, the US Dollar Index is still declining.
The US has been continuously raising interest rates, but it now appears that the gains are limited, and it might even be counterproductive.
02, Interest Rate Hikes
Although the US CPI data shows that the current year-on-year increase has dropped to 6.5%, marking the first time it has fallen below the 7% threshold, if we consider that the month-on-month decrease is only 0.1%, it is enough to indicate that prices are still high. It is clear that the year-on-year decline is merely due to the high base of the price index in December last year.
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At the same time, the unemployment rate has dropped to 3.5%, indicating that the US job market remains tight.In response, Federal Reserve official James Bullard stated that inflation remains extremely high, far exceeding the Federal Reserve's target. Although it is slowing down, the pace is too slow. Since the dot plot predicts interest rates above 5% for 2023, rates should be raised more quickly to above 5% now.
In addition to the expected interest rate hike by the Federal Reserve in early February, it is anticipated that the interest rate will also be increased by 25 basis points at the March meeting. Under this expectation, the US Dollar Index is even less likely to rise, and may even quickly fall to 95 or lower levels.
This implies that a significant amount of capital may flee from the US market and re-enter emerging markets, with the selling of US stocks and bonds likely to intensify in the coming period.
03. Swiss National Bank Losses
The continuous interest rate hikes by the Federal Reserve have caused various difficulties for many countries, but the challenges faced by the Swiss National Bank are particularly unique.
Last week, the Swiss National Bank released a forecast announcement stating that it may incur losses of up to 132 billion Swiss francs in 2022, which, when converted to Chinese yuan, amounts to a staggering 970 billion yuan.
Moreover, the losses of the Swiss National Bank are quite peculiar, primarily stemming from the appreciation of the Swiss currency.
In 2022, as the US Dollar Index continued to rise, non-US currencies also experienced significant declines, with other currencies falling much more than the Swiss franc.
Due to the Swiss National Bank's asset portfolio containing many foreign currency assets, these assets have depreciated relative to the Swiss franc. Therefore, when converted into Swiss currency, the total assets of the Swiss National Bank showed a loss of nearly 1 trillion yuan.
04. Federal Reserve's 350 Billion VanishingThe Federal Reserve, the central bank of the United States, has also suffered significant losses.
In 2022, the Federal Reserve's profits plummeted, decreasing by 46% compared to 2021, which means that $50 billion in profits vanished, equivalent to 350 billion yuan when converted to Chinese currency.
We say that the United States has gained little while losing much, not only due to the halving of the Federal Reserve's profits, but more so because the United States is facing a massive capital flight in 2023.
In 2022, although a substantial amount of capital flowed into the U.S. market, it did not necessarily yield profits, as while the U.S. dollar appreciated, U.S. dollar assets experienced a significant decline.
Now, as the U.S. Dollar Index begins to fall, and there is no clear rebound in U.S. stocks and bonds, this creates a vicious cycle of negative feedback: capital outflows, asset sell-offs, falling asset prices, and accelerated capital flight.