Core Viewpoint - The recent depreciation of the Hong Kong dollar is perceived as an "invisible fee" for investors in the Hong Kong stock market, indicating that while they believe they are competing with the Hang Seng Index, they are actually being adversely affected by the US dollar cycle [1]. Group 1: Macro Forces Impacting Currency - The ongoing weakness of the Hong Kong dollar is driven by three macro forces: a potential shift in the Federal Reserve's monetary policy, market expectations of a "weak dollar strategy," and a complete reset of tariff expectations [3][4]. - The first driver is the potential change in the Federal Reserve's monetary policy framework, with the nomination of Kevin Warsh to replace Jerome Powell, which is interpreted as a shift towards a policy that favors quicker interest rate cuts in exchange for stronger balance sheet discipline, thereby weakening the dollar's valuation [3]. - The second driver involves the publicization of a "weak dollar strategy" by US leadership, which has led to a re-evaluation of dollar assets and increased selling pressure on dollar-linked assets [4]. - The third driver is the legal ruling against the Trump administration's tariff policies, which has diminished the core narrative supporting short positions on the yuan, leading to significant short covering and further downward pressure on the dollar against the yuan [4]. Group 2: Support for the Renminbi - The renminbi is supported by a historically high trade surplus, projected to reach approximately $1.19 trillion in 2025, with exports expected to be around $3.77 trillion, reflecting a year-on-year growth of 5.5% [5]. - The second support factor is the stability of monetary policy and marginal improvements in economic fundamentals, with the central bank maintaining the Loan Prime Rate (LPR) and signaling no need for competitive devaluation to stimulate growth [5]. - The third support factor is the long-term trend of de-dollarization, with the renminbi's share in SWIFT trade financing increasing to 8.3% over four years, enhancing its valuation support independent of the dollar cycle [5]. Group 3: Economic Conditions in Hong Kong - Despite the weakening of the Hong Kong dollar, the local economy is showing signs of growth, with GDP expected to increase by about 3.5% in 2025 and a year-on-year growth of 3.8% in the fourth quarter, indicating a recovery in the stock market and service sector [6]. - The core issue remains that the linked exchange rate system requires Hong Kong's interest rates to follow the US dollar's trends, limiting the ability to provide valuation support for the Hong Kong dollar despite local economic recovery [6]. Group 4: Future Predictions - The current weakness of the dollar is viewed as a cyclical fluctuation rather than a structural collapse of dollar hegemony, with potential reversal points dependent on the maturation of key triggering conditions [7]. - Three core conditions for a reversal include the emergence of "second inflation" risks due to Warsh's policy framework, systemic trade barriers against Chinese exports in global southern markets, and the internal contradictions of the "weak dollar strategy" leading to increased inflation and financing costs [8]. - The market is expected to experience a two-phase rhythm: an initial phase of continued downward movement until early Q3 2026, followed by a correction and confirmation phase from late Q4 2026 to early Q1 2027, where focus will shift to inflation rebound and fiscal risks [9].

Core Viewpoint - The statement by Trump that "the dollar is controllable" is interpreted by the market as a signal amidst global skepticism regarding the credit of the dollar [1] Group 1 - The potential announcement of a "weak dollar strategy" could alter the pricing logic of tariffs [1]

Core Viewpoint - The recent $1.39 trillion trade agreement between the U.S. and the EU, while appearing to be a significant victory for the U.S., reveals underlying challenges and potential weaknesses in the U.S. dollar's dominance in global markets [1][3]. Trade Agreement Details - The agreement includes commitments from the EU to purchase $750 billion in U.S. energy products and $400 billion in AI chips by 2028, along with an additional $600 billion in investments from European companies into U.S. strategic sectors [1]. - However, the actual projected energy imports from the EU to the U.S. for 2024 are only $64.55 billion, falling significantly short of the annual target of $250 billion [1]. Tariff Adjustments - The U.S. will reduce tariffs on EU automobiles from 27.5% to 15%, while the EU will eliminate tariffs on all U.S. industrial goods, with a 15% cap on tariffs for key products like semiconductors and pharmaceuticals [3]. - Economists criticize this as a superficial exchange, suggesting that the EU is making significant concessions without receiving equivalent benefits [3]. Federal Reserve Dynamics - Following the trade agreement, President Trump nominated Stephen Milan, a proponent of weakening the dollar, to the Federal Reserve, which could lead to a significant shift in U.S. monetary policy [3][4]. - The market reacted strongly, with a 91.1% probability of a rate cut by September indicated in federal funds futures, leading to a decline in the dollar index [3]. Political Influence on the Federal Reserve - Tensions within the Federal Reserve are escalating, with Trump pressuring for the removal of Biden-appointed board members, which could result in a majority of Trump-aligned members on the board [4]. - Milan's proposals for reforming the Federal Reserve could undermine its independence, potentially leading to a repeat of past economic crises [5]. Global Market Reactions - The potential loss of independence for the Federal Reserve has raised alarms in global markets, with warnings from the Bank for International Settlements (BIS) and the IMF about the risks of politicizing central banks [5]. - A decline in the dollar's credibility could lead to a sell-off, increasing the attractiveness of gold and other currencies, while also distorting trade flows due to high tariffs [5]. Economic Philosophies Clash - The trade agreement reflects a clash between the U.S.'s unilateral approach under Trump and China's multilateral "Belt and Road" initiative, with implications for global supply chains [7]. - Short-term benefits may arise for risk assets, but long-term consequences could include rising inflation and economic friction with the EU and Switzerland over the U.S.'s weak dollar strategy [7].