Even though the USD is broadly weaker in recent days, metals prices have fallen notes Greg Gibbs, Director at Amplifying Global FX Capital and suggests that this may be an indication that some of the confidence in the global economy is slipping.
Key Quotes
“Apart from uncertainty over US policy, market confidence is also facing headwinds from political risk in Europe. Furthermore, China has been gradually tightening monetary conditions this year, and concern over its pace of debt creation remains elevated.”
“Emerging and commodity currencies have benefitted this year from stronger global economic indicators, a weaker USD and perhaps also as a haven from a Eurozone and Brexit political risk. These gains may stall, at least against JPY and gold, if global uncertainty remains elevated.”
“The Fed minutes said that a few participates thought that “equity prices might in part reflect investors' anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize.”
“If uncertainty over US policy remains elevated, US and global equities are vulnerable to a correction, which may further cause some correction in commodity and EM currencies relative to JPY and Gold, and perhaps also against the beleaguered USD.”
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