The signal of US dollar depreciation has arrived: a new phase of divergence in monetary policies between Europe and the US

The latest minutes from the European Central Bank’s meeting send a clear signal: the dollar faces devaluation risk. The reason is straightforward—the U.S. monetary policy stance may be more dovish than market expectations. This is not just a technical document but the starting point of a reshaping of the global liquidity landscape. Meanwhile, warnings from global financial leaders at the Davos Forum, escalating US-EU trade tensions, and political pressures on the Federal Reserve’s independence are collectively driving a new era of monetary policy.

Why the US Dollar Faces Devaluation Pressure

Policy Divergence Roots

The ECB’s assessment points to a core issue: excessive U.S. government spending has forced the Federal Reserve to follow a dovish path. According to the latest information, Ken Griffin, founder of Castle Securities, a hedge fund managing $65 billion, bluntly stated at Davos, “All governments are overspending, almost without exception.” He pointed out that Washington is trying to use productivity leaps brought by artificial intelligence to rescue a $38 trillion debt deficit, but this plan may be overly optimistic.

Against this backdrop, the Fed faces pressure not only from economic data but also from political interference. Reports indicate that Fed Chair Powell is facing unprecedented risks of political intervention, further reinforcing market expectations that U.S. monetary policy will remain accommodative.

Europe’s Dilemma and the Central Bank’s Forced Choices

In contrast, Europe’s situation is more complex. The threat of 200% tariffs imposed by the Trump administration is becoming a reality, directly impacting Europe’s export-driven economy. French wine exports may fall from 1.6 billion liters to below 1 billion liters, reducing GDP by about 0.2 percentage points—an actual blow to Europe, where growth expectations are already fragile.

ECB President Lagarde’s performance at Davos also reflects this tension. She abruptly left a dinner after a critical speech by the U.S. Commerce Secretary, indicating that cracks in US-Europe relations go beyond trade issues.

Under trade pressure, the ECB may be forced to adopt more dovish policies to stabilize the economy. This means the euro also faces devaluation pressure, but the dollar’s devaluation pressure is greater—because U.S. policy easing may surpass Europe’s.

Historical Benchmarking and Global Liquidity Reshaping

Ghosts of the 1920s

At the Davos roundtable, historian Adam Tooze drew an unsettling analogy. The 1920s were a frenzy of electrification and assembly line technology; today, it’s the rapid rise of artificial intelligence. Back then, dollar hegemony was emerging; today, the dollar system is under pressure. The most dangerous similarity lies in “political failure.”

At that time, global trade as a share of GDP plummeted from 21% to 14%. Today, amid geopolitical fragmentation and tariff barriers, global trade is under similar stress. This trade fragmentation will further weaken the dollar’s attractiveness as a global reserve currency.

Potential Capital Exodus

When trillions of euros and dollars face devaluation risks, where will they flee? Traditional safe-haven assets like U.S. Treasuries and gold are facing their own difficulties. U.S. Treasury yields fluctuate amid uncertainty, and although gold has hit new highs, liquidity remains limited.

This presents an opportunity for cryptocurrencies as a new type of safe-haven asset. According to recent reports, BlackRock’s BTC spot ETF has seen record single-day net inflows this month, reflecting that institutional funds are beginning to reassess the allocation value of crypto assets.

Possible Market Reactions

Key Factors to Watch Moving Forward

• Will the Fed’s independence hold? If political interference truly impacts monetary policy, it will fundamentally change the global liquidity landscape.
• Degree of US-EU trade war escalation: tariff levels determine how much pressure Europe’s economy will face.
• Global central bank coordination: Lack of minimum cooperation could intensify market volatility.
• Institutional capital flows: Will there be a genuine migration from traditional assets to new assets this time?

Summary

The minutes from the European Central Bank’s meeting essentially reflect that the global monetary policy is entering a new phase. Expectations of easing in the U.S., escalating US-EU trade tensions, and risks to the Fed’s independence all point in one direction: increasing dollar devaluation pressure and a reshaping of the global liquidity landscape.

This is not alarmism but a reality the markets are digesting. For investors, the key is to understand the logic behind this policy divergence rather than blindly chasing trends. In the coming months, the policy statements of the US and European central banks and the influence of U.S. politics on the Fed will be critical variables in determining market direction.