External rates as a driving force of global monetary transformation

If the Federal Reserve begins easing monetary policy in the coming quarters, the world will face a major reallocation of capital. External interest rates will play a key role in this process, affecting not only currency pairs but also geopolitical dynamics of monetary policy and investment flows between continents. A weakening of the US dollar will be a logical consequence of such a strategy, as Washington traditionally uses this mechanism to reduce debt burdens and improve trade positions.

The Fed on the path to easing: why devaluation is inevitable

The current strength of the US dollar is more related to its relative advantage compared to the weakness of global competitors than to internal strength. Continuous interest rate cuts and financial injections dilute confidence in the reserve currency of the world. Dollar devaluation is essentially an organic part of the US economic strategy — it reduces the government’s debt burden and enhances export competitiveness, a classic response to structural economic problems.

For the rest of the world, this means recalibrating external interest rates relative to new realities. Previously, China’s central banking system was hesitant to stimulate due to fears of imbalance between American and Asian interest rates. Massive capital outflows made any expansionary policy risky. Now, as the Fed has shifted course, the dispersion of interest rates is decreasing, and pressure on capital outflows is easing.

China’s monetary policy: from constraints to maneuver

The second half of the year opens new opportunities for a more active stance. Central banks’ ability to lower reserve requirements and interest rates to stimulate the economy increases proportionally with external restrictions easing. The Fed’s policy shift in 2023 was a turning point — a fifty basis point cut created room for maneuver, although later Fed Chair Jerome Powell unexpectedly paused the process, reacting reactively.

If the US central system continues on its easing path, restrictions for other players will significantly decrease. The current economic competition between the US and China is essentially a test of monetary policy resilience. Washington is concerned about inflation risks and bond debts, while Beijing faces issues with local debt and real estate market adjustments. Historically, the first to loosen the squeeze lost initiative. However, the new dynamic, where the Fed continuously lowers interest rates, could turn this game around.

Internal uncertainty and external opportunities

An additional factor is internal uncertainty in the United States. Potential personnel changes in the Fed leadership, and possibly in the presidency, could lead to an even more dovish monetary stance. Such developments would further weaken external pressure on alternative centers of power.

The return to dollar devaluation cycles means that domestic monetary policy flexibility will increase. In the second half of the year, room for maneuver expands so much that the US could take on a leading role in driving global economic growth. Indeed, true bull markets often form precisely from such macroeconomic shifts — when geopolitical dynamics create new opportunities for capital reorientation and trigger expansion cycles in peripheral markets.