Is dollar weakness more than just rates?
|Risk-on flows stall.
Personal Income on deck.
Nikkei -2.82% Dax 0.35%.
UST 10Y 0.53.
Oil $40.
Gold $1975/oz.
BTCUSD $11127.
Asia and the EU
EU GDP -12.1%.
North America
US PI/IS 8:30.
Markets were subdued on the final days of the month with currencies flat across the board while equities saw little follow-through from the good news in FANG earnings.
With little newsflow in FX, currencies went into their usual summer stall last night keeping tight ranges in lackluster trade. The dollar strengthened mildly but it was nothing more than very tepid profit-taking as investor sentiment continues to be very negative against the greenback.
The weakness in the dollar appears to be much more than just a mere interest rate compression story, though that is certainly the dominant fundamental factor aligned against the buck. With 2 year at mere 11 basis points and benchmark, 10-year sliding toward the psychologically key 50 basis point mark income returns on dollar-denominated fixed income are shrinking by the day.
But this particular selloff may be political as well as economic. With the US in a permanent state of turmoil at war with most of its allies as well at its adversaries, it’s global standing among the productive liberal democracies of the world at an all time low, investors may be losing faith in the strength of US credit. This is clearly one of the reasons why gold is rising, but it’s not alone. Bitcoin is in the midst of a stealth rally as well having crossed the 11,000 mark without much fanfare. The price action in alternative currencies suggests that the dollar troubles may just be commencing especially if the political rancor, pandemic hotspots, and a reversal in the economic rebound from Q2 lows all combine to create a highly volatile start to autumn.
So far stocks have blissfully ignored the political problems in the US and yesterday’s banner earnings reports from most of the FANGS have validated the bull’s faith in the internet economy which dominates US indices. Stocks have managed to hold on to most of their post news reaction gains but have made no progress in the overnight session. The bulls will certainly try to push the indices higher with longs gunning for the key 11,000 level in the Nasdaq as the month comes to a close, but with prices now reflecting all the good news we may be setting up for profit-taking day if the expected upside momentum does no materialize at the New York open.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.