Buck Finds Strength Behind Q4 Volatility
The U.S. Dollar has been enjoying its best strengthening week since April as this week established ongoing worries and uncertainties about the remainder of the year.
Political infighting, intense international relations, and a pandemic that continues to deal with growing numbers of infected have all played a role in causing a reemergence of the buck as a staple of flight-to-safety moments. Indeed, we are witnessing a change of fortunes in markets, particularly in the emerging market realm whose stock indices are at the lowest point since March. The MSCI Emerging Market Currency Index is back down to its weakest levels since the end of August.
Markets returned to some level of clam yesterday after Senators restated their commitment to making sure elections are held right and that transition of power is done peacefully if the challenger is successful. Data-wise to end the week we got Durable Goods Orders figures this morning showing that August growth was cut dramatically with an expected 1.5% coming in at just a mere 0.4% reading. It will be hard to make an argument against the buck in the next few months until there is clarity in many risk items and events. We will see if today or over the weekend legislators can pass a rescue package after new proposals from Democrats to try bridging with Republicans.
What to Watch Today…
- No major events scheduled for today
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The Euro is down close to 2.0% this week following a change of sentiment regarding the prospects for Euro-bloc growth in Q4. The return of cases and hospitals starting to see larger numbers again of patients is making many national leaders reconsider lockdowns and other quarantine-like restrictions. Italy has been praised for keeping things manageable while in Spain there is more concern, thus there is once more a lack of coherence in managing the medical issue at hand. We shall see if Euro tests new lows and perhaps dips into levels last seen in early Summer when it was trying to overcome major weakness.
The Pound has lost ground and may be in line to sink further as this week’s headline news about the U.K. brought mostly doubts about the sustainability of Britain as we know it. Brexit fumbles, infections returning, and the difficulties of re-engaging with trading partners are setting GBP for doom. If there is a change in diplomatic fortunes, we will be surprised, but the swings for the Pound will remain mostly on the downside as Prime Minister Boris Johnson sets himself to battle many fronts.