FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
FxPro information and reviews

Stock market relief keeps US dollar pinned down

30 May 2022 Written by Marios Hadjikyriacos  XM Investment Analyst Marios Hadjikyriacos

The conversation in financial markets has changed dramatically in the past few weeks. Whispers of recession have replaced inflation as public enemy number one, thanks to a growing pile of evidence that economic growth is losing power. Cracks have started to show in the US housing market as soaring mortgage rates take a bite out of demand, while major corporations such as Amazon have announced plans to slow or freeze hiring amid a scramble to slash costs. It’s not just an American story either. China might already be in recession, the British economy is battling a severe slowdown, and the Eurozone is unlikely to stay immune for long. 

Dollar cools off

Bond markets have started to reflect these risks. Treasury yields have been losing altitude for most of the month as slower economic growth got baked into the cake and inflation concerns receded. The Fed could even hit the ‘pause’ button by September if the economy underperforms according to Bostic. 

All this has taken the shine off the US dollar and the question is whether we are in the early stages of a trend reversal. Admittedly, the fundamental picture hasn’t changed much. Most economies are in worse shape than America and a global recession would likely send safe-haven flows into the reserve currency, so this still seems like a correction in the broader uptrend. 

There are three fundamental catalysts that could trigger a trend reversal in the dollar - the Fed pauses its tightening cycle or China abandons zero-covid policies. Until then, calls for the dollar’s demise are premature. 

Riskier currencies bounce with stocks

As always, a sinking US dollar lifted all other boats in the FX market. Dollar/yen has mirrored the slow grind lower in Treasury yields and there might be more relief in the pipeline amid speculation the Bank of Japan could adjust its yield curve control strategy now that inflation has started to fire up. Similarly, the British pound and other risk-sensitive currencies have enjoyed a nice rebound. One could argue the fundamental outlook for sterling has gotten worse with the latest UK business surveys foreshadowing a sharp economic slowdown, so this latest recovery seems linked to the improving mood around equities. 

Stock markets have been trading like a pinball machine, with the S&P 500 rising by almost 10% in just over a week after the index dipped its toes in bear market territory. Many attribute this stunning recovery to Fed bets being dialed back a notch amid signs inflation has peaked. 

However, that’s not very convincing. If the Fed’s trajectory is really being recalibrated because of economic slowdown concerns, equities should be feeling the pain too as earnings estimates get revised lower. Instead, this seems mostly like a relief bounce, driven by oversold conditions and short-covering.  

Oil prices and upcoming events

In the energy arena, oil prices continue to march higher as demand shows no signs of cooling and supply remains constraint. Windfall taxes on the profits of energy companies like the UK has imposed could even make the situation worse by discouraging new drilling and investment in the industry. 

On the bright side, the Biden administration has hit the panic button ahead of the US midterm elections, sending diplomats to Saudi Arabia for 'secret talks' to boost production. 

There isn’t much on the agenda for today, with only German inflation data on tap. US markets will remain closed for the Memorial Day holiday, so liquidity will be thinner than usual. The rest of the week includes a Bank of Canada meeting and the latest US employment report. 

By XM.com



Stocks drift, dollar firms as markets brace for US jobs slowdown
Stocks drift, dollar firms as markets brace for US jobs slowdown

Recession jitters were abound on Friday even as markets got off to a steady start following a few wobbles along the week. PMI indicators around the world painted a grim picture for services activity, suggesting major economies...

5 Aug 2022

Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed
Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed

Geopolitical tensions and recession fears appear to have faded into the background for investors as shares on Wall Street staged another impressive rally on Wednesday...

4 Aug 2022

Fed hawks lift yields out of the doldrums, yen pauses for breath
Fed hawks lift yields out of the doldrums, yen pauses for breath

Bond markets were reeling and interest rate futures were being recalibrated after Federal Reserve officials questioned the recent scaling back of rate hike expectations by investors...

3 Aug 2022

US-China tensions dent appetite as yields crumble, dollar creeps higher
US-China tensions dent appetite as yields crumble, dollar creeps higher

Risk sentiment took a knock on Tuesday as it emerged that the Speaker of the US House of Representatives Nancy Pelosi is on her way to Taiwan, defying China’s strong advice against...

2 Aug 2022

Crude Oil Is Afraid of Geopolitics
Crude Oil Is Afraid of Geopolitics

The commodity sector remains rather tense on Monday; Brent is trading at $102.75. Global geopolitics is what investors are focused on right now. Any complications in this area muddy the water...

1 Aug 2022

Dollar slips further as easing rate hike bets bolster stocks
Dollar slips further as easing rate hike bets bolster stocks

The US dollar has started August on the backfoot as markets are increasingly convinced that the Federal Reserve’s rate hike days are numbered, while Wall Street has just notched up its best month since November 2020...

1 Aug 2022

Forex Forecasts

HFM information and reviews
IronFX information and reviews
FXCM information and reviews
Pepperstone information and reviews
NordFX information and reviews
LegacyFX information and reviews

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.