Macroeconomic strategists point out that one of the biggest features of 2025 will be the peak of the US dollar against other MMF, which will mark the beginning of a major trend.
As the USD began to stabilize in 2025 amidst rising debt and changing Global capital flows, the question of how long this strength will last remains.
Resilient economic Indicators and rising US Treasury yields have bolstered the USD, but Crescat Capital's macro strategist Tavi Costa warns that this dominance may soon be shaken.
In an interview, Costa explained why he believes this year is a pivotal turning point for the USD and emphasized its impact on Gold, Silver, and Global markets.
In recent years, the strengthening USD has been a significant feature of Global markets, supported by steady Inflow of capital into US Assets. However, Costa believes that a structural shift is imminent, driven by unsustainable fiscal policies.
"One of the biggest characteristics of 2025 will be the USD peaking against other fiat currencies," Costa said. "Not just for tangible Assets, but for Other fiat currencies as well. This will happen in the first or second quarter of 2025. It will mark the beginning of a major trend that will push markets outside the West to levels we haven't seen in a long time."
Costa noted that historical USD cycles provide valuable insights. He cited a 10-year rolling change as an example, highlighting how long-term cycles alternate between USD appreciation and depreciation.
The strengthening USD brings complex consequences. While it helps curb import prices, it also diminishes the competitiveness of US exporters and multinational companies' goods and services, putting pressure on them. Additionally, Costa believes that the USA's aggressive fiscal expansion is creating vulnerabilities that could accelerate a reversal.
The valuation of the US stock market is higher than that before the Great Depression in 1929. Why do people believe there is more value here? If we see a significant shock in early 2025, I would not be surprised at all. I am truly worried about the risks, which will lead to the depreciation of the dollar. This will be the next chapter of the macroeconomics in the coming years.
For investors, the peak of the dollar may provide opportunities for tangible Assets such as Gold and Silver. Costa emphasizes that the performance of Gold can hedge against irresponsible fiscal policies and currency devaluation. He stated, "As central banks continue to increase their purchasing, the appeal of Gold will only grow stronger." He refers to the recent surge in demand for Gold from central banks around the world.
Meanwhile, he believes that Silver represents an underrated opportunity. "The gold to silver ratio is 83 to 84. When Gold enters a true bull market, we often do not see these things continue. Silver serves a dual role as both currency and Industrial Metals. There is a strong possibility of seeing historical prices. I can't help but focus on Holdings related to Silver Assets."
Costa also pointed out the Global market, as capital flows shift from US Stocks to Japan, India, and South American markets, opportunities may arise.
Inflation and interest rates remain key variables in this equation. Although progress has been made in bringing inflation down from the highs of 2022, Costa warns that structural issues such as de-globalization and underinvestment in Commodity production may keep inflation elevated.
However, he does believe that the Federal Reserve will significantly lower interest rates. "They will be forced to cut rates. If any form of shock occurs in the market, they will take the opportunity to cut rates further. In the next six months, we might see the Federal Reserve make substantial decreases in interest rates."