Dollar king in tumultuous global markets

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Dollar king in tumultuous global markets

SEPTEMBER 29, 2021

The U.S. Dollar remains strong as its advance continued overnight despite a bit of a rebound for global markets that are worried we will enter a period of stagflation as we start the fourth quarter. 

Overview

Indeed, the energy crisis has many concerned that we will be in a period of low growth and high inflation, something that threatens a deeper slowdown, if not a potential recession. Supply-chain issues are now causing many to ponder about their economic outlooks, yet the Fed has a hawkish tone, which benefits the buck as investors jump towards the higher yield opportunity.

Stocks globally will try to recoup some losses as the Europe Stoxx 6000, which managed to come back from a 2-month low. We may get some news headlines regarding spending and the debt ceiling as we get through this week. Certainly, there is a lot of uncertainty because of the political friction witnessed in Washington, particularly yesterday as even the Fed’s Chairman re-nomination was refused emphatically by Senator Elizabeth Warren. Vulnerability and volatility make for an exciting FX market that could change from its current dollar-friendly moment rather quickly as we have seen before during the pandemic.

What to Watch Today…

  • No major economic events scheduled for today

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EUR   

The Euro is currently trading at its weakest point since November last year as the dollar rally based on fears of stagflation continued overnight. The energy crisis in Europe is adding to worries about the economic sustainability of the continent as major economies like Germany and France deal with domestic issues. The change in leadership in Germany is now inevitable after elections, but now we will have our eyes on a frustrated Emmanuel Macron, who felt humiliated at the hands of Australia’s government which denied him arms business that went to a U.S/British coalition.

Marine Le Pen, a controversial populist who ran against him last time, is trying to frame his entire time in office as a failure and could shake things up dramatically if she came to power, especially in post-Merkel EU.  The low ranges can change quickly, but the future of the EU as a cohesive unit is not guaranteed anymore.

GBP   

Sterling dipped to its weakest level of the year against the buck as worldwide worries weigh on all non-USD tender. While the Bank of England even spoke of hiking interest rates, the reality is the energy crisis is bringing up questions about post-Brexit Britain. Around the country, industrial leaders and politicians are using this opportunity to point out the trading flaws of the arrangement, which they claim has exacerbated this energy shortage. An EU member of parliament went as far as saying that this is all proof of the “intellectual fraud” represented in voting for Brexit at a time when cooperation and coordination over competition and supplies would be useful.

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