Governments Push Central Banks, Raising “Fiscal Dominance” Fears
In recent weeks, traders are worried about a trend called fiscal dominance. This happens when governments spend heavily and borrow more, forcing central banks to keep interest rates lower than needed.
In the US, President Trump has been pushing the Federal Reserve to cut rates and make borrowing cheaper. Similar pressure is seen in the UK and Japan, where governments want central banks to delay or avoid raising rates.
Bond markets are already showing stress, as the gap between short- and long-term yields widens. Many analysts say this could shake investor trust in central banks and create currency volatility.
For the Forex market, fiscal dominance is a big concern:
- The US Dollar (USD) could weaken if traders feel the Fed is losing independence.
- Safe-haven currencies like the Japanese Yen (JPY) and Swiss Franc (CHF) may gain strength during uncertainty.
- Gold demand is rising as a hedge, which can also affect commodity currencies like the Canadian Dollar (CAD) and Australian Dollar (AUD).
- Major forex pairs like EUR/USD, USD/JPY, and GBP/USD may see sharp moves as markets react to this mix of high debt and political pressure.
Impact :
The US Dollar might lose momentum if fiscal dominance fears grow. Safe-haven currencies could strengthen, while gold and commodity-linked currencies possibly stay in demand amid global uncertainty.
