Overview
Pierre-Olivier Gourinchas, the International Monetary Fund's chief economist, said on Friday that the U.S. dollar remains the dominant currency for international trade and finance. Speaking to reporters, Gourinchas emphasized that recent adjustments in trade patterns - including unilateral tariffs imposed by President Donald Trump on many countries - have not produced sizeable shifts away from a dollar-focused global system.
Dollar's continued centrality
Gourinchas described current developments as showing "very, very little" evidence of a departure from what he called a dollar-centered world. He said that while a change could theoretically occur at some time in the future, the data and events of the past decade show only modest movement away from the dollar's central role.
Gold's price dynamics
The IMF economist offered an explanation for recent sharp increases in the price of gold. He pointed to gold exchange-traded funds as a primary driver, noting that such funds allow investors to gain exposure to gold without taking possession of the physical metal. Gourinchas also mentioned that issuers of stablecoins are holding gold as an asset, which has bolstered demand and contributed to upward pressure on prices. He added that central banks are not currently active buyers of gold.
Market reaction and price context
Gold rose on Friday as the dollar eased and expectations for U.S. interest rate hikes softened slightly following the release of U.S. inflation data on Thursday. That inflation release suggested that price pressures in the United States may have peaked, easing market concerns about further rate hikes. In early afternoon trading, spot gold was up roughly 1.4% and quoted at about $4,083 per ounce. Despite the intraday gain, gold remained on track for a fourth consecutive weekly decline.
Gourinchas is scheduled to depart the IMF next week to return to teaching.
Dollar movement after U.S. inflation gauge
Following publication of the Federal Reserve's preferred inflation gauge on Thursday, the U.S. dollar backed away from recent highs. That moderation in the dollar coincided with the rise in gold prices and slightly reduced expectations for rapid further rate increases by the Fed.
Key Takeaways
- The U.S. dollar continues to anchor global trade, banking and central bank reserves, according to the IMF's chief economist.
- Recent increases in gold prices are mainly attributed to demand via gold exchange-traded funds and gold holdings by stablecoin issuers, rather than central bank purchases.
- Market moves in the dollar and gold were influenced by U.S. inflation data that suggested inflation pressures may have peaked, easing rate-hike expectations.