Troubled world makes for a stronger Dollar

The U.S. Dollar is trading in mostly familiar ranges as we start a week, stronger across the board as optimism leaves global markets.

Overview

Following the Fed’s meeting last week, it is clear that borrowing costs will indeed be increased during a time when the world’s second-largest economy is still preventing rather than producing. Supply-chain concerns continue to fuel the increase in prices for everything and equity markets are worried there will be no clear way out of the economic rut to come.

According to China’s Premier Li Keqiang, the employment situation is of “grave” concern after years of locking people in their homes. Per the U.S. Dollar Index, the buck is at a fresh new two-year high.

As China ‘stagflates’ and the U.S. tightens, the rest of the world has to adjust, and it is having a difficult time catching up. Post-pandemic risk-aversion is the current mood, which could maintain the greenback at these levels in the short term. Things are messy for all outlooks as economists try figuring out where the economy will land in the next two quarters considering the path the Fed has set for quantitative tightening.

What to Watch Today…

No major economic events are scheduled for today

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EUR

The Euro remains in tight ranges as the globe prepares for a more independence-seeking European Union looking to form new energy sources to avoid Russia. Reports from the war front describe a situation of complete chaos that has left a lot of people homeless and looking to establish themselves in other countries. The EU now has to cope with the humanitarian crisis along with a bleak short-term future based on the lack of global economic well-being.

As May moves along, we will watch out for any European Central Bank comments that could move the needle as well as any headlines that provide hope for peace or talks towards a resolution. In Russia, the invasion of Ukraine is being fomented as the larger global conflict in which the world is actively negating Russia its rights. Further escalation is always on the radar.

GBP

Sterling has stopped the bleeding from now following a terrible end of the week that put in doubt the U.K.’s ability to prevent a recession. Per the Bank of England, interest rate hikes have been and will be necessary to combat inflation, but the view on economic restrengthening is that it will take a while, perhaps getting through 2023 until seeing some growth in domestic product.

As the global powers struggle and even major stocks suffer losses in value, expect the buck to simply stay buoyant and keep a steady level, but any surprises that come on the side of positivity and optimism will sink it as it is now fully priced in the Fed will gradually make moves.

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