USD debasement – a fleeting focus or a sign of what’s to come?

• The correlation between gold prices and the USD has strengthened recently, driven by growing debasement fears.

• Persistently sticky inflation has contributed to these debasement concerns, alongside higher energy prices resulting from the US-Iran conflict.

• US Treasury plans for larger bond buybacks have highlighted concerns over rising long-term US yields. Efforts to help cap yields have, in turn, undermined confidence in the USD.

• Neither major US political party has shown a strong willingness to pursue fiscal tightening.

• FX reserve managers are expected to continue diversifying away from the USD.

• Debasement fears eased following Jackson Hole, where Kevin Warsh's keynote speech reassured markets that the Fed is prepared to raise rates if underlying inflation does not moderate sufficiently.

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