US dollar, DXY & FX market insights
High-frequency views on DXY, dollar funding, cross-currency basis and how USD trends shape global assets.
This is how The Soviet Union kickstarted Eurodollar markets in the 1950's
Eurodollars are USD deposits held at banks outside the U.S. Originally, they were held mostly in European jurisdictions, thus the "Euro" in the name.
URSS needed U.S. dollars for international trade, but they didn't trust keeping balances directly in New York, as they feared that U.S. would freeze or seize those deposits.
So URSS placed their USD deposits in European banks, often via Soviet-linked banks. Those European banks then re-deposited or lent out those dollars to other banks and institutions.
I've written extensively how the policies of the current U.S. administration are a negative for the USD. Asian countries have been progressively moving away from USD, and this is a sign from Europe in that direction (but don't expect heavy de-dollarization in the near future).
Overall, I view this as a net positive for the sovereignty of EU/Europe as a whole. A more developed financial system infrastructure is crucial for attracting the use of Euro, which is already the 2nd most used currency in the world.
How exactly does Bitcoin break U.S. dollar control, when >90% of Bitcoin's buying volume is USD-derived (including stablecoins)?
i explained how weaker US dollar increases cross-border USD liquidity in this thread: https://illya.sh/threads/@1755216337-1.html
weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit
this means an increase in broad money
weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit
this means an increase in broad money
i covered more this aspect of QE in my thread about how to use yield spreads to reason about future Bitcoin price and cycles
you can read it here: https://illya.sh/threads/@1755595543-1.html
it's NOT yet the top of the cycle for equities, cryptocurrencies and other risk assets. here’s why
1️⃣ US Treasury is issuing more debt
2️⃣ in the next months I expect the Fed to cut rates and/or introduce some form of QE
3️⃣ weaker USD means more cross-border USD credit
i wrote a thread explaining why weaker USD means more credit/loans issued in USD, thus driving up global liquidity
you can read it here: https://illya.sh/threads/@1755216337-1.html
USD cross-border bank credit grew by $800 billion in Q1 2025
expect further increases for Q2 2025, due to the weak US dollar
USD cross-border bank credit grew by $800 billion in Q1 2025
expect further increases for Q2 2025, due to the weak US dollar
renminbi has become dominant in credit growth since 2022
a move from US dollar & Euro denominated credit to Chinese Yuan-denominated credit
USD dominates in cross-border bank credit to non-bank financial institutions in 2025
this collateral (US Treasury bonds) can then be used on wholesale debt markets to issue more credit
moreover, this collateral can be leveraged/rehypothecated, thus increasing liquidity
still, in the USA the Fed continues to dominate in importance
so it may not only be central bank setting the rates and affecting liquidity
for example, when US Treasury auctions bonds, they're both, temporarily reducing the effective amount of USD in circulation and providing more high-quanlity collateral
so a weaker US dollar tends to increase global USD liquidity
in the SVAR, one standard deviation of US dollar's appreciation leads to a fall in cross-border USD lending. it reaches its bottom after 6 months and then eventually recovers after 2.5 years if no new shocks arrive
bank's leverage ratios improve due to collateral appreciation, thus allowing them to borrow more USD
collateral here is the non-USD local currency, such as Yuan
weaker US dollar means more USD credit issuance abroad - here's why
foreign banks frequently borrow USD through wholesale markets with a local currency denominated collateral
when USD depreciates against a local currency, offshore USD credit now has a reduced debt service
i wrote a thread about what it means for the US dollar to be the reserve currency from the perspective of demand and liquidity
you can read it here:
https://illya.sh/threads/@1754940239-1.html
this is nothing unusual though - many governments do this, and it's mostly towards stabilizing the exchange rate with USD
to a large extent this is a result US dollar's reserve currency status and its dominance in use for all sorts of financial transactions
this is nothing unusual though - many governments do this, and it's mostly towards stabilizing the exchange rate with USD
to a large extent this is a result US dollar's reserve currency status and its dominance in use for all sorts of financial transactions
🇯🇵 Yen's exchange rate stabilization is a responsibility of the Minister of Finance (MoF)
MoF is also the holder of Japan's international reserves - not the Bank of Japan
so in Japan the government has significant responsibility for USD/JPY
🇯🇵 Yen's exchange rate stabilization is a responsibility of the Minister of Finance (MoF)
MoF is also the holder of Japan's international reserves - not the Bank of Japan
so in Japan the government has significant responsibility for USD/JPY
gold is in the same price range as when the US dollar index was ≈97.7 on July 25th 2025
if DXY hits ≈97.1 - expect gold to retest ≈$3440. this time with a stronger support build up by price action
this could definitely be what pushes gold to a new all time high
re-iterating on the 1.5 month old thread 😄
inflation is still here to stay and gold is still yet to do something - but it sure will
i also wrote a thread explaining the importance of USD-denominated government debt for short-term funding/credit markets
remember that most of credit is issued to refinance existing debt and not for new financing
you can read it here:
https://illya.sh/threads/@1751726431-1
i wrote about how reverse repurchase agreements work and their importance in the global financial system in this thread:
https://illya.sh/threads/@1751561045-2
the US will be able to sustain their debt financing for as long as US government debt and US dollar dominate in demand
for as long as USD is the reserve currency - the US can finance its debt
in other words, as long as there's enough buyers and users - it's all good! 😁
debt includes all form, tenor and issuers of USD-denominated debt are included, both public and private
examples: US Treasuries, corporate bonds, commercial bank credit, epos, FX swaps, central-bank lines
liquidity means availability, thus it comes down to being able to:
1️⃣ access USD credit
2️⃣ settle payments in USD
this means balance sheet capacity and hybrid technological intermediation systems in place
demand is created legal/regulatory environment and open market forces
legal/regulatory environment includes international bilateral agreements and national laws
open market forces influence the evaluation of USD against other currencies and assets
demand is created legal/regulatory environment and open market forces
legal/regulatory environment includes international bilateral agreements and national laws
open market forces influence the evaluation of USD against other currencies and assets
USD is the world's reserve currency, but what does that mean?
for USD to be a reserve currency it must dominate in:
1️⃣ USD-denominated credit issuance (demand)
2️⃣ USD use a means of settlement for payments (liquidity)
this dominance must be at least relative to alternatives
USD is the world's reserve currency, but what does that mean?
for USD to be a reserve currency it must dominate in:
1️⃣ USD-denominated credit issuance (demand)
2️⃣ USD use a means of settlement for payments (liquidity)
this dominance must be at least relative to alternatives
further deprecation of USD against Ruble
now back to July 4th 2025 levels
5 days ago I wrote that USD/RUB rate will fall. 5 days later it's down ≈2%
despite oil being down - gold is up
Ruble has hedge from multiple sides
8 month later after my initial post USD index is down ≈8%
Bad news for #USD 👎
The value of a currency is a direct reflection of the organic demand for it. Sanctions will decrease the demand for US Dollar, via disincentives
Plus, it's the US consumer that will be paying for the tariffs, not the BRICS countries 🤷♀️
5 days ago I wrote that USD/RUB rate will fall. 5 days later it's down ≈2%
despite oil being down - gold is up
Ruble has hedge from multiple sides
if you've read my previous posts you know that gold is ≈36% of Russia's international reserves
this is taken straight from the Bank of Russia's balance sheet statement
100% of it is stored in Russia, thus no counterparty risk
critical component of Ruble's strength
the 70% USD dominance here is as calculated by the Fed across the chosen 5 chosen buckets - with the end result being a weighted composite measure
so don't read this as a literal 70% of all cross-border transactions
🇺🇸 USD dominance is alluring, accounting for ≈70% of currency usage worldwide
even countries that do relatively little trade with US have most of their transactions done in US dollars
ex: 🇮🇳 India invoices 86% of its exports in USD, while only 15% of its exports being to US
