The US dollar seems to be losing value in recent days. The US currency's six-week streak, which affected many markets, may be coming to an end.
The systematic strengthening of the U.S. dollar over the past month and a half could be related to both expectations for interest rate increases in the U.S., the war in Ukraine, as well as a deterioration in sentiment on risky assets. Looking at the charts of the dollar, stock indices, US bonds, gold, silver or cryptocurrencies, the correlation is quite clear. The past six weeks have seen the capitulation of every market settled in USD. Stocks, bonds, gold, cryptocurrencies fells, and the dollar strengthened. Now, however, the dollar's streak may be broken by its first recent week of weakness.
Thanks to this, we can see a rebound in the prices of gold, silver, cryptocurrencies, and bond yields seem to be turning back under the 3% level for US 10-year notes. Recession fears, which appear to be growing, may be influencing the valuation of monetary tightening by the Fed. The market may also have fully discounted the US interest rate hike cycle. At one point, 10-year bond yields exceeded the 3.1 percent level, and the interest rate market assumes that the peak of the hike cycle will end in the 3.00-3.25 percent region.
Going forward, 10-year bond yields would first rise to the level to which the federal funds rate would then rise on the principle that the market discounts the future. So if the market is already at a point where there is a full cycle of hikes in bond, stock, dollar, gold prices, then the next step may be to price in monetary easing. This in turn can create turning points across multiple asset classes and markets.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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