De-Dollarization Will Accelerate / USDX Will Rise.

Along with the collapse of the euro the US dollar will lose more ground in the global payment system for international commodities and trade.

These two dynamics will create a very weird moment where the USDX — the US Dollar Index — will rise but the US dollar will be under sincere pressure vs. gold, commodities and other rising emerging/developed market currencies.

The USDX is heavily weighted towards the euro and the British pound and the Chinese yuan is not represented at all. So, from one perspective the US dollar could be in a bull market but from another be in a bear market.

That said, the fall in faith of the “Fed Put” will put upward pressure on the US dollar because overseas US dollar synthetic short positions, known as US dollar-denominated debt, is still pretty biblical in size, keeping a strong bid under the dollar.

Because of all of these competing forces — inflation, de-dollarization, war, etc. — the last US dollar bull market for the foreseeable future should be on tap in 2023. For how long? It’s a good question, I can’t answer.

But I do know that it’s tied to #7 and to the Fed’s need to keep raising rates…

7) Saudi Arabia will de-peg the Riyal

In fact, I also expect the Hong Kong Dollar peg to fall, but maybe not in 2023. It depends on the strength and rate of internationalization of the Chinese yuan this year.

Oil prices are going higher and the Saudis have been tendered the offer by China’s Xi to begin the process of weaning itself off the US dollar. Crown Prince Mohammed bin Salman seems agreeable to this.

When the Saudis put their first oil tender up for bid in Shanghai, that will signal the end of the currency peg that created the petrodollar. It will be a subtle thing that will gain steam over time, just like Russia and China diversifying their holdings into each other’s debt and currencies has taken years to develop.

So, the petrodollar will continue to die by a thousand cuts. The Saudis will lead OPEC+ out of the US dollar arena, validating both China’s onshore futures markets while also moving a significant amount of the gold trade away from London to Hong Kong.

By hedging their oil profits in gold on China’s international exchange they strengthen both the onshore (CNY) and offshore (CNH) yuan markets and laying the foundation for a much different financial future.