Global FX Policy Shift
Citi Questions if a New Bessent Doctrine is Shaping Global Currency Policy
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Treasury Secretary Scott Bessent is reshaping how the U.S. manages global currency policy, raising questions about whether a historic shift akin to the 1985 Plaza Accord is underway. Citi Research has flagged potential major changes as Bessent pushes controversial interventions to fix currency imbalances. The U.S. and Japan recently coordinated to support the yen after USD/JPY hit a 40-year high near ¥164 per dollar.
Bessent's "national economic policy" rests on five pillars: economic security, mutual free trade, new rules for next-generation economies, and greater benefits to workers. Citi Research warns that fixing yen weakness will be tough. The currency relies heavily on yen-selling hedges tied to stock market gains. If that reverses, it could force European nations into a "currency alliance" stance.
The Plaza Accord Parallel: A New Currency Framework?
The 1985 Plaza Accord was a landmark agreement where five major economies coordinated to weaken the overvalued dollar. Citi Research suggests Bessent's aggressive FX approach may echo that historic deal. His emphasis on rebalancing global trade and currency imbalances signals a departure from passive currency watching. The recent USD/JPY intervention marks a visible policy shift toward direct action.
Why Yen Support Faces Structural Headwinds
Fixing yen weakness is more complicated than a simple intervention, Citi Research explains. Japanese companies use yen-selling hedges to protect gains from stock market rallies. These hedges create constant downward pressure on the currency. If the stock market cools, those hedges unwind, but the underlying weakness remains hard to reverse through intervention alone.
A Potential European Pivot Toward Currency Cooperation
If yen weakness persists despite U.S. intervention, the ripple effects could reshape European policy. Citi Research predicts that stronger Chinese yuan could push European nations to embrace cooperative FX strategies. Instead of competing in currency markets, nations might form a coordinated "currency alliance" to manage competing pressures. This signals a potential end to the era of benign neglect in global FX.
Bessent's Five-Pillar Strategy for Reshaping Trade
Beyond currency moves, Bessent's economic framework targets deeper structural change. Economic security, mutual free trade, next-generation economy rules, and worker benefits form the backbone of his approach. This broader vision suggests FX intervention is just one tool in a larger strategy to rebalance global trade and strengthen domestic economies. The "Bessent doctrine" appears to blend immediate FX action with long-term policy redesign.
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