Although the Federal Reserve did not raise interest rates again in September, and the likelihood of a rate hike in November is also slim, the US Dollar Index still broke through 107 with strong momentum.

What does this mean?

The US Dollar Index has risen for 13 consecutive weeks, reaching the highest level of recovery since the decline in November last year. This clearly indicates that the currency war instigated by the US dollar is not only not slowing down but is also escalating.

The US dollar also hopes to continue to suppress non-US currencies such as the euro, yen, and pound through strong appreciation.

However, the actual effect is not optimistic.

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Last year, when the US Dollar Index was at its highest, it once broke through 114. The rapid rise at that time was mainly due to the Federal Reserve's continuous rapid interest rate hikes.

But during this period, the US Dollar Index has rebounded from the 100 mark, rising by 7%, mainly due to repeated statements by Federal Reserve officials that they are not considering cutting interest rates for the time being and will maintain high interest rates for a longer period.

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The latest job vacancy data indicate that the US labor market remains tight, which may drive up US hourly wages, leading to higher inflation. Therefore, the Federal Reserve believes that interest rate cuts are not possible in the short term.

The original expectation of interest rate cuts by the Federal Reserve has thus fallen through, and the US Dollar Index continues to rise.However, the rise in the US Dollar Index may just be a lonely increase.

We have found from data comparisons that since the beginning of 2023, the US Dollar Index has so far risen by 3.57%, but the decline in the British pound is only 0.31%, and the decline in the euro is also only 2.30%. In other words, the decline in the British pound and the euro is less than the increase in the US Dollar Index, showing strong resilience.

Now it seems that the currency war initiated by the US dollar seems to be concentrated on the Japanese yen. Since the beginning of this year, the Japanese yen has fallen by as much as 13.79% against the US dollar, and in the past two days, the yen has even broken through 150.

From the beginning of the US dollar's one-on-one against the British pound, the euro, the Japanese yen, and other currencies, it has now evolved into a one-on-one battle between the US dollar and the Japanese yen.

However, at this critical moment, US Treasury bonds have dragged their feet.

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Now in the US Treasury bond market, the higher the yield, the greater the selling pressure and the stronger the short-selling momentum.

The latest data shows that the 10-year US Treasury bond has reached 4.78%, and more and more investment institutions believe that it will reach more than 5% in the next few weeks. This means that the 10-year US Treasury bond will also usher in a rapid decline.

After conducting a survey, JPMorgan Chase found that the proportion of short positions in US Treasury bonds has risen sharply and has set a new high in the past month and a half.

A few months ago, the large Wall Street hedge fund Pershing Square had publicly confirmed that it was heavily short-selling US Treasury bonds, focusing mainly on 30-year US Treasury bonds.The current yield on U.S. Treasury bonds has risen to 4.89%, and it seems quite possible that it could continue to rise to 5.5%.

The selling in the U.S. Treasury market in the previous period mainly came from holders who hoped to reduce their losses by selling.

Now, the selling in the U.S. Treasury market is increasingly coming from short-selling institutions, which borrow U.S. Treasury bonds for selling in the hope of obtaining short-selling profits.

This could lead to a vicious cycle of U.S. Treasury bond declines, and the United States will also lose this currency war as a result.

In fact, everyone is very clear that the United States has launched a currency war to suppress the exchange rates of other currencies, mainly for the purpose of transferring the crisis and wealth harvesting.

However, currency wars are never only reflected in exchange rate changes.

Now, the crisis of U.S. Treasury bonds is becoming more and more serious, which will inevitably drag down the performance of the U.S. dollar, but this issue cannot be solved. Because the fundamental reason behind it is that the fiscal deficit of the U.S. government is getting higher and higher, leading to the continuous increase in the cost of issuing bonds.

Under these circumstances, everyone is unwilling to hold U.S. Treasury bonds and is selling them. Foreign capital even withdraws funds from the U.S. market after selling U.S. Treasury bonds, which will inevitably suppress the exchange rate of the U.S. dollar.

Without the support of interest rate hikes, the U.S. dollar index itself lacks the momentum to rise. If funds also flee from the bond market, the U.S. dollar index is likely to show a significant decline in the near future.If the Bank of Japan intervenes promptly at this time, as long as it can hold on for a while, when the US dollar index falls, the Bank of Japan can even launch a counterattack.

The outlook for the US dollar is very bleak.