Are We Watching the Dollar Break? | Andreas Steno Larsen | Macro Mondays
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Hey guys and welcome to Macro Mondays. I'm Andreas Steno and I'm all by myself this week as my usual partner in crime, Mikkel Rosenwald, is traveling London today. We have a great week ahead of us and the market action already today is very telling in many ways. We've had rumors over the weekend around

Powell being laid off by the Trump administration. We've had news coming out around the terrorist war and so on and so forth. So I'd like to start with a brief guided tour around what's going on across assets today. And please keep your questions coming, no matter whether you're watching on the Real Vision app, on YouTube, on Twitter. The

Questions are open, and I'm open to discussions around some of the conclusions that I'll make today because they're not always vanilla. First up, let's have a look at this discussion around Jay Powell because it would be a tremendously volatile event should Donald Trump decide to lay off Jay Powell. And first of all, can he lay off Jay Powell?

Well, on paper, not really. And, you know, when Trump got this question late last week during a press conference, he said something like, OK, if I wanted to get him out, he would be out quickly. And the way I read that is that, you know, if a president really wants you out, maybe it's a good idea to pack your bags and leave. And, you know, that's one way of getting rid of Jay Powell.

Another way of getting rid of Jay Powell in a de facto way is to ensure that you have a quote unquote shadow chairman in the board already now. And we know that Jay Powell's term ends in May 2026.

And the Treasury Secretary, Scott Besant, already told the media that they're planning on some sort of application process starting or commencing already just after the summer. So let me put it like this. What if they appoint someone from May 26 onwards already very soon? And what if they pick someone who's already underbought?

My guess would be Chris Waller, especially given the reaction function that he painted for the Federal Reserve given the terrorist war just last week. He was much more accommodative of the terrorist policy in his policy view.

So if they appoint him, let's just take that example already now and say he's going to succeed or be the successor of Jay Powell in May 2026. It basically means that you already have a new chairman on the board, right? Just de facto or a shadow chairman. And I think that would be a game changer for Jay.

the Powell position, basically, of Jay Powell. If you look at Jay Powell and the voters over the past couple of years within the Federal Reserve System, most of the governors, also the external members, they voted together with Jay Powell on right about everything, which is a fairly new phenomenon in politics.

the history of the Federal Reserve, they typically had a lot more internal fights. And this could obviously be one way of trying to, you know, it's almost like an internal hostile takeover of Jay Powell's presidency, in a sense, if they appoint a new chairman.

already now. So no, I think it's very unlikely that Trump will lay off Powell in an old-fashioned way, but they have tricks up their sleeve to try and navigate this situation without laying him off. And I think that's basically what we should expect over the coming, say, two or three months. Hi, Raoul here.

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On top of that, before we get to the market today, because it's very telling what we're seeing in markets now also in relation to this discussion on the Fed chairman. I think this tweet or this truth post from Donald Trump earlier is very important also to discuss because he basically listed a whole range of non-tariffs related barriers for trade.

And when they initially came up with this semi-bizarre calculation on how to do reciprocal tariffs on the rest of the world, they kind of tried to accommodate for all of these non-tariff barriers. Currency manipulation. Do note that it's number one on this list. Very important to note. VAT or sales tax across the globe.

dumping, protective standards. The list is long. It's very difficult to come up with a formula to include all of these seven, eight, yeah, non-tariff cheating points. But I think there is value in reading this list from the top to the bottom. So we know that Trump and his team is already negotiating with Japan. We know that they're negotiating with South Korea, most likely as well, potentially Vietnam. So some of the countries around China

And what we know right now is obviously also that the terrorist war is very centered around China. They also added to this wall by a new costs for Chinese ships docking in the US last week. China made a few counter moves by, for example, prohibiting their private equity firms to invest in the US. So it is now both a terrorist war and some sort of light capital war. And

One thing that is, to me, almost crystal clear from the Trump administration's policy guidelines surrounding this is that the dollar needs to weaken to get these balances back in sync, basically. That is what Scott Besson wants. That is what Trump wants. That is what Peter Navarro wants. That is what Stephen Mirand wants. So, you know, all of the

key lieutenants are on board this dollar plan. And last week, whether it's true or not, I don't know, but Wall Street Journal basically reported that there is some sort of internal fight ongoing between Peter Navarro and Scott Besson, basically. They have differing views on how to solve this trade mess.

Scott Besant is much more benign on tariffs compared to Navarro, but Navarro can agree with Scott Besant that a weaker dollar would balance the trade balance to some extent at least with the rest of the world since it will become easier for the US to export and harder for the counterparts to do so. And for Scott Besant, the weaker dollar provides the backdrop needed to ease financial conditions globally, which is basically what he wants out of this, I think.

So there is some common ground there. And I even think, but now I'm thinking out loud, that China could accept such a dollar accord with a weaker dollar in return for some concessions on the geopolitical picture, whatever it is. So all roads lead to a weaker dollar right now. I think that's basically the main takeaway from the weekend of tariff news. And

Judging from the price action today, it's basically what we're seeing across markets as well. Let's have a look at gold first. And, you know,

This price chart from Bloomberg is, I don't know, 60 or 90 minutes old when I updated it just before this weekly call. And, you know, we've seen a move in gold even since. So it is, you know, it almost looks exponential, this chart, if you look at the gold price since April of 2024. And it's been an accelerating trend, say, the past three, four weeks, you know,

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Due to this tariffs war being a very, very good story for gold. And why is that? Well, if there's a path to a weaker dollar,

that's obviously good for the gold price since it's denominated in dollars. So it's kind of a protection against the basement of the dollar in that sense. It's also some kind of a hedge against tariffs. If you look at tariffs from a very practical standpoint, there is obviously the risk that you need to pay more to bring gold to the US. So we had that story, bringing up the gold price.

There is also the risk that tariffs lead to very hostile capital wars between countries. That risk is also sort of hedged by gold, especially if you look at it from the perspective of, say, a high net worth individual or a family office. You want something that you can go and find in an extreme scenario, right? Yeah.

And this is not a paper position. This is not if you buy physical gold. And I think that's a value add in a sense here in a situation like the current. What about Bitcoin then, the digital gold? Also seeing a very interesting price action in Bitcoin, in my opinion. And we're maybe seeing the early signs of the decoupling between Bitcoin and technology stocks in the US, which is something that it's been an ongoing discussion for

maybe a year or two, whether that could finally happen or not. And I think we're in the early innings of that decoupling right now. At least it looks like the same logic can sort of be almost tattooed to the Bitcoin case as the logic that I just laid out for gold to a large extent. You know what it is? It provides a hedge against the dollar debasement. And

you have a degree of certainty that the system cannot just go and confiscate it in case of an extreme scenario unfolding. So I think that's why we see this price action in tandem. This is obviously also related to the very weak dollar that we're seeing again today. We're seeing a weak dollar against the Euro, against Japanese yen, against most peers actually. And

Maybe this is also related to all of the discussions ongoing around the dollar as a reserve currency. Could this strategy of Trump and Peter Navarro and Scott Besant alter the trend in a sense around the dollar as a reserve currency?

Remember that this show is always a sneak peek into the institutional quality research that we provide at Steno Research and at Real Vision for the pro macro subscribers. I've written a whole article on this topic today and also how to deal with it in your portfolio. Loads of value add and alpha in that article. So go and have a look. The dollar exchange rate is down again today. If you look at it technically here on the chart, basically over the past five years or so,

It seems like we've broken a really, really interesting level, technically speaking here. And the question is now whether there's any merit to the story that we're seeing central banks, for example, but also institutions outside of the official institutions moving away from the dollar and into euros, Japanese yen, gold, Bitcoin, et cetera, on the back of this. And, and,

I think there are some early merits to this. We don't have the data from the official institutions from March and April yet. We have data up until February. We got that data last week. And it didn't provide any clues on whether they were selling US treasuries and dollars to buy gold, euros, et cetera. But if you look at the price action again today, it is a price action that kind of supports this storyline.

Look at it in very simple terms. If the dollar sells off and US treasuries sell off at the same time, then it is probably driven by global central banks moving away from the dollar to some extent into euros. Because at the same time as we've seen this weak dollar and weak price action in dollar denominated bonds, we've actually seen an okay price action in, for example, German bunds.

And I think that's telling because it kind of matches the logic underlying what I just laid out with central banks moving from one currency to another. Because if you're a central bank reserve management, if you hold dollars in your reserve, you would typically park them in treasury instruments. But if you hold euros, you would typically park them in say German debt instruments instead. Stig Brodersen : So if they sell dollars,

they also sell US treasuries to some extent. And if they buy euros, they also buy German goods to some extent. So that would give you the exact price action that we've seen, say, over the past two or three weeks here. We've also touched upon the risk of China using this whole FX slash fixed income instrument strategy.

as a light capital war against the US to try and put pressure back on the Trump administration. And from what we could gather from this Wall Street Journal story last week, it seems like Scott Besant and Howard Locknick are very aware of these potential adverse effects on the US Treasury market, on dollar denominated debt markets, etc. And Brian, if I can get you to flip to the US Treasury chart just above,

It is kind of nasty to see bond yields going up at the same time as you're seeing the dollar going down. And it is incredibly rare that we have this price action in tandem. Typically, we would see the dollar going

trading much stronger when you have dollar bond deals going up, basically what we've seen over the past couple of years. But now we're seeing a divergence between the two, which is something that, you know, it looks almost semi-reminiscent of a light EM crisis. This is what we've seen in the UK. Sorry for connecting the dots between the UK and an emerging market, but the gilt market and the sterling market

has been through a couple of these periods over the past couple of years. We've seen it in Brazil. We've seen it in other large EM countries that a currency crisis can, to some extent, end up as a fixed income crisis as well, and ultimately a crisis for the local capital market, OBL. So what scares me a little bit about this is that

It is probably to some extent related to foreign capital losing trust in the dollar denominated market to an extent. What's very different from the sterling crisis that I described from a few years back is that we're talking about the reserve currency of the world here. And it's not crystal clear to me whether there even is an alternative to the dollar from this perspective.

You need a whole list of prerequisites to be fulfilled before you can feasibly talk about being a reserve currency. And the dollar is the only one with the checkmark in front of each of them. But the risk here is that for the first time, at least during my professional career, I

it's getting pretty normal, pretty vanilla to question the credibility of the dollar outside of the US. We've really seen that being a topic over the past, say, month or two. And I've never really seen it to any serious extent. It's always been out there, this story, could this happen at some point? But now it's actually happened. And for those of you who've read

the stuff that Stephen Miran, who's basically the chief economic advisor to Trump, has put out on tariffs, the dollar, the global reserve currency status of the dollar and all of that. It's very linked to what the famous analyst Zoltan put out, I think it was in 2024, and labeled the Mar-a-Lago Accord. And I have a cartoon from...

from one of the global cartoonists trying to give us a little smile on our face given this situation. I know it's not funny always, but the Mar-a-Lago Accord is basically an accord that to some extent links weakness in the dollar to foreign buying of US treasuries in return for

for the sort of geopolitical security umbrella of the US defense system. So in layman terms, what this accord suggests is that, okay, Japan will make sure to spend money on securing you if you allow the dollar to weaken versus the Japanese yen. That's what's going on right now. But you need to also buy treasuries in return for this. And right now, it seems like

This situation is aspiring a little bit out of control for the Trump administration because they're getting the dollar weaker, which is what they want. But they're not seeing the foreign buying of U.S. treasuries that they would like to see in conjunction with it. And I think that is slightly discomforting as an investor to see this disconnect, especially since it's not part of the plan. It seems like something is not going according to plan here.

And we're also yet to see any deals being signed on this. I think Japan will be the first one. We know that they will have negotiations again this week with the Trump administration. We know that this foreign exchange policy is one of the key topics during these discussions. And we also know that the Japanese inflation is above target. So they could probably accept a stronger currency at least in a year now.

So again, the more I think about it, the more I get to the bottom of this story and what's unfolding right in front of me, I think we're maybe seeing a seismic shift here in terms of the attractiveness of the dollar. And I think there's a risk of a controlled debasement spiraling into some sort of more extreme debasement of the dollar here over the next six to 12 months.

And I'd like to bring up a question from Ben Buzinowski in relation to this, because I don't know whether you can find it in the meantime, Brian, our producer. But Trump tweeted something about he who has the gold makes the rules in relation to these negotiations. There you go. And sorry, Ben asks me, you know, what does this actually mean? You know, does it refer to gold?

physical gold or is it more like he holds the gold in a more indirect way? Honestly, I don't know then. But before Trump turned into a Bitcoin slash Ethereum slash crypto

proponent. He was certainly a gold proponent. Try to look up his stuff on YouTube from the 90s and the zeros. He talked a lot about gold and talked a lot about the gold standard and stuff like that. So to me, it just underpins the current narrative in gold. I'm not sure whether I need to read between the lines in this tweet. There's certainly a potential case there, but

Without any doubt, Trump is a big, big gold guy and also proponent of gold as some sort of hard currency backing the system. At least historically, he was that. Now he's kind of more of a mix between golden and non-fiat digital assets. It's a very good question, and thanks for bringing that up.

For the week ahead, outside of watching these Japan negotiations and whether we end up with a deal that brings the dollar in a weaker direction versus the Japanese yen, I think that would be just another clue underpinning everything I've said in this show today. We also have the PMIs coming up on Wednesday. Not the ISM PMIs, but the Standard & Poor's PMI and POS.

That PMI is typically not watched a lot by market participants because it's the second most important after the Institute of Supply Management PMIs. But this week, I think it's very, very important. Have a look at this chart, page 10, Brian, on the US ISM PMI. So in some of the research that we've done,

laid out on the current situation for our pro macro subscribers on Real Vision. We've compared April 2025 to March 2020, not because of similarities between a pandemic and a trade war, but because of the reminiscence in terms of what's going on in markets. The dollar was also very weak initially in the pandemic lockdowns.

Because of the shock to the demand side, this is a very one-off policy-driven shock to the system, as was the lockdown. It was, here we go. In one go, we had major shock to the system, and liberation day proved to be the same. Much larger tariffs, much bigger shock to the system than what most people had anticipated, including me, by the way.

And if you look at various measures of uncertainty, various measures of decision-making through April, such as order books and stuff like that, everything has come to a standstill, which is typically what happens when you get such a shock, quite literally. Okay, what do I do now? You need a few weeks before you take a decision, basically. And I think we'll see that.

in the PMIs already coming up on Wednesday. And then also, of course, in the ISM manufacturing PMI and so on and so forth into the early innings of May. So I wouldn't be surprised to see like a 5-10 index point move south in these PMIs. Something that will make it, you know, almost obvious to Jay Powell that he needs to do something. And that's why I've compared his speech last week to the speech that Christine Lagarde

the president of the European Central Bank gave, I don't know, a couple of days after the lockdown in March 2020. She said, oh, we're not here to solve this situation. And boom, you know, the shock was there. She had to do something. And I think Powell will come to the same conclusion to some extent, even though he sounded like someone who wanted to be very, very patient just last week.

A couple of data prints can change things quite quickly here. And I even think, you know, Powell went as far as quoting Ferris Bueller last week. I don't recall the exact quote, but it's something about life coming at you fast. And maybe that was, you know, some kind of a hint that he's aware that, you know, a couple of data prints here may be a non-farm payrolls report printing negative for April. I think that's, you know, you kind of clearly cannot rule that out.

If we get such key figures, he will respond, even though he said more or less the opposite last week. So I still think that there's a very decent chance that we'll get some major easing out of this by the end of the day. And again, it also boils down to a week of dollar, right? If we get, say, something QE-like or non-QE-QE, we've discussed these things endlessly here at Real Vision,

it's in favor of a dollar debasement. And I think all roads need to dollar debasement now. If you want to check out exactly how we've positioned for this

Go check out the portfolios, the in-depth research in the pro macro tier. Lots of alpha and value add in there, including the whole article I've written on this Mar-a-Lago Accord and why all roads lead to a weaker dollar right now as a consequence of what's ongoing geopolitically. And that's the first one for me in the sense that geopolitics lead to a weaker dollar.

Basically, you haven't seen it before, but that's what's happening right in front of our eyes right now. Thank you very much for tuning into this week's Macro Mondays. And thanks for the questions. I'll make sure to answer more of them in writing after this. And yeah, make sure that you check out our Pro Macro Insider Talk tomorrow. I'll talk to Raoul Pal, the founder and CEO of Real Vision.

about the Mar-a-Lago Accord, about the dollar, about how to secure your portfolio against dollar debasement and all of that. It seems like all roads are leading to a weaker dollar and all roads also leading to the pro macro insider talk tomorrow for our subscribers here at Real Vision. Thank you very much for joining us today. And we'll see you again next Monday with Mikkel Wollsenwald back joining me in the studio.

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