Being long dollars will no doubt become an overcrowded trade at some point and a reversal will ensue, but for hedge funds right now, there is no alternative. Funds have amassed their biggest bet in six months that the dollar will strengthen against the world’s major currencies, and you can understand why. From widening interest rate and yield spreads, favorable relative growth prospects, and safe-haven flows amid exploding equity- and crypto-fueled market volatility, there are many factors behind the greenback’s ascent to a 20-year peak. The latest Commodity Futures Trading ...

USD: April retail sales should keep dollar supported After quite a month in financial markets which saw global equity markets fall 15% and USD/CNY spike 6%, it seems like we are entering a period of consolidation. At the epicentre of that unease has been China, where lockdowns have seen Chinese and global growth forecasts cut. The lockdown strategy by Chinese authorities seems unlikely to change anytime soon, but there is some very short-term optimism that the residents and workers of Shanghai might be released after three days without a new ...

The dollar eased for a third straight day on Tuesday as investors cautiously trimmed bets on a rally which sent the greenback to a two-decade high last week. The currency’s strength is widely expected to remain a driving force across financial markets in 2022 as the U.S. Federal Reserve implements a new cycle of monetary tightening. Fed speakers on Tuesday, including Chairman Jerome Powell at 1800 GMT, will be closely watched for any clues about whether near-term rate expectations could become even more aggressive. The U.S. currency’s breather pushed the ...

The European Central Bank may kick off the development of its digital euro, an electronic version of banknotes and coins, by the end of next year, ECB board member Fabio Panetta said on Monday. “Finally, at the end of 2023 we could decide to start a realisation phase to develop and test the appropriate technical solutions and business arrangements necessary to provide a digital euro,” Panetta said. “This phase could take three years.” Source: Reuters (Reporting By Francesco Canepa; Editing by Toby Chopra)

USD: All about risk sentiment Risk assets are desperately seeking some stabilisation after seven consecutive weeks of losses in US equities and exacerbating market concerns over the combination of a global economic slowdown and monetary tightening. Asian equities are mixed this morning, while futures point to another negative open for most European and US stock indices today. In the FX market, the main implication of this period of risk instability has been a weakening of the link between short-term rate differentials and currency dynamics, as the liquidity factor (Norway’s krone, ...

The U.S. dollar consolidated gains near a two-decade peak on Monday as poor Chinese economic data hurt cyclical currencies including the British pound and the Australian dollar lower. While expectations of a hawkish Federal Reserve have been instrumental in fuelling a dollar rally that has seen a broad index gain nearly 10% so far this year, the latest episode of dollar gains has been driven by extended lockdowns in China. China’s retail and factory activity fell sharply in April as wide COVID-19 lockdowns confined workers and consumers to their homes.. ...

The International Monetary Fund (IMF) has raised the weighting of the Chinese yuan in the Special Drawing Right (SDR) currency basket, according to a press release on Saturday. In its latest SDR valuation review completed on Wednesday, the organization raised the yuan’s weighting to 12.28 percent from 10.92 percent and the U.S. dollar’s weighting from 41.73 percent to 43.38 percent. The other three currencies in the basket, the euro, Japanese yen and British pound, had their weightings reduced. The SDR is an international reserve asset to supplement the official reserves ...

USD: Another short-lived correction? Western equity futures are in the green this morning, in line with a rebound in Asian equities overnight after a very rough week for risk sentiment. In FX, the four G10 currencies that have been most strictly correlated with risk-asset dynamics – Norway’s krone, Sweden’s krona, and the Australian and New Zealand dollars – are attempting a recovery this morning. The liquidity factor is inevitably a key driver of the recent market moves, as often happens during times of market distress: it is therefore not surprising ...

The euro edged off five-year lows to rise back above $1.04 on Friday, but it is headed for a big weekly loss after Russia’s decision to restrict gas supplies to Europe renewed fears about an economic slowdown in the euro zone. The single currency has been battered in recent weeks by a combination of fears for the economy suffering from the fallout of the war in Ukraine, and a huge rally in the dollar fuelled by bets the Federal Reserve will deliver a series of big interest rate hikes to ...

U.S. companies are ramping up efforts to protect their profits from a relentless rally in the dollar, as the greenback surges to multi-decade highs. The dollar has climbed about 15% against a basket of currencies over the last year, helped by a hawkish Federal Reserve and heightened geopolitical tensions that have boosted the greenback’s safe-haven appeal. That surge has reduced the profits of U.S. multinational companies that convert foreign currency into dollars, adding to corporate worries over soaring inflation and a murky economic outlook and pushing some to more actively ...

Barely recovered from a two-year bout of COVID, emerging markets now face capital flight, inflation, and even debt defaults as the dollar’s run to two-decade highs tightens the screws. Almost all past emerging market crises were linked to dollar strength. As the dollar rises, developing countries must tighten monetary policy to head off falls in their own currencies. Not doing so would exacerbate inflation and raise the cost of servicing dollar-denominated debt. For all the improvements of recent decades, those equations still broadly hold and the recent dollar rally is ...

USD: April inflation keeps Fed in aggressive tightening mode Instead of showing any real signs of slowing, yesterday’s US inflation data delivered a worrying 0.6% month-on-month rise in core prices and does nothing to suggest that the Fed will be any more relaxed in the pace and endpoint of its tightening cycle. This should be a core story that supports the dollar over the coming months – i.e. that the Fed has more cause than most to get its policy rate to neutral. Policy hawks think that the neutral rate ...

The dollar hit a two-decade high on Thursday after U.S. inflation moderated less than markets had expected, keeping the Federal Reserve on course to tighten policy aggressively. The safe-haven greenback also got support amid a slide in global equities amid investor worries that central banks are behind the curve in trying to rein in consumer prices, with growth already facing risks from China’s prolonged COVID-19 lockdowns. Riskier currencies like the Aussie and New Zealand dollars sank along with cryptocurrencies. The dollar index =USD, which measures the buck against six major ...

There’s a familiar air of 1985 about – and not just in Cold War politics or the gull-wing DeLoreans in “Back to the Future”. With inflation rates as high as those of the early 1980s, U.S. interest rates rising faster than those of other major economies and the dollar rocketing worldwide, it’s not surprising to see investors making references to 1985’s “Plaza Accord”. Named after the New York hotel where finance chiefs of the then G5 world powers agreed to weaken a super-charged dollar through market intervention, Plaza became an ...

USD: Higher core inflation should keep Fed tightening intact Global FX markets appear a little calmer today, helped by some stability in Chinese asset markets. Despite the ongoing lockdown in Shanghai, Chinese equities are up over 2% today and the renminbi seems to have found some temporary support. Recall that the re-pricing of China’s growth and asset markets over recent weeks has been a major contributor to commodity currency and emerging market FX weakness and a further support to the dollar. The current stability looks fragile, however. Until we see ...