Dollar Down, Yen Up: Geopolitics and Carry Trades at Play
The US dollar is continuing its decline against other major currencies due to easing geopolitical risks and a return to 'sell America' trade sentiment. A recent report in the Wall Street Journal has added fuel to the fire, suggesting that Donald Trump is frequently communicating with Kevin Warsh, potentially making the new Fed chair a puppet of the White House.
This development could lead to a rough ride for the greenback as investors lose trust in US policy. On the other hand, Oman and Iran are close to reaching an agreement to reopen the Strait of Hormuz without charging a fee, which requires action from the US, likely lifting sanctions, leading to increased oil supply, lower prices, and reduced inflation risks.
As a result, other currencies may strengthen against the dollar. However, will the yen be an exception? Bank of America predicts USDJPY will plummet to 149 by year-end as the Bank of Japan accelerates monetary policy tightening to maintain current levels.