US dollar soars as inflation fears slam markets Risk assets worldwide endured a very difficult week. Inflation data continues to get worse and central banks are sounding increasingly strident alarms over the need to bring it down. Interest rates blew out worldwide; interestingly, this time European rates rose further than US ones, in response to a decidedly hawkish ECB. Somewhat ominously, European peripheral rates rose most of all. Amid the stock market sell-offs, the US dol

US dollar sell off continues as risk appetite returns Stock markets and risk assets in general rebounded strongly last week, while US rates did not. The result was a predictable dollar sell-off, with the main beneficiaries the European and Latin American currencies. The former was boosted by the closing rate differentials across the Atlantic, the latter by the return of risk appetite in general and the blistering commodity rally in particular. Special mention to the Polish zl

Volatility returns with a vengeance on Fed hawkishness Interest rates are going up everywhere, hard and fast, and markets are finding it increasingly difficult to ignore the consequences. Stocks staged a relief rally in the wake of the Federal Reserve’s 50 basis point hike, but it was short-lived, and by the following day they resumed their downward trend, closing the week at the lowest levels since late-2020. The great beneficiaries of the flight to safety were the dollar an

ECB hawkishness fails to rescue euro as Russian invasion continues to drive markets The ECBs unambiguously hawkish messaging last week did not stop the euro from sinking to new lows as concerns mount over stagflation or worse. We also saw a significant rebound in Eastern European currencies led by the Polish zloty, as central banks in the region both raised interest rates aggressively and/or intervened directly in the market in order to prop up their currencies. We also saw c

Russian invasion of Ukraine upends world markets In the end. US intelligence warnings were fully vindicated as Putin launched a full-scale invasion of Ukraine on Thursday. For the next two days, markets girated wildly, but a sense that Western sanctions would avoid cutting Russia off entirely from the financial world fueled a late rally on Friday on most risk assets. As this is written, this is already outdated, as Western sanctions escalated over the weekend and Putin put nu

Dollar rallies as monetary tightening comes into focus The dollar's blistering rally gathered speed last week as markets brought forward their expectations for Fed hikes, while the European Central Bank's aggressively dovish communications hammered the euro. Central bank policy has become the main driver in currency markets, and other news are typically ignored except insofar as they affect expectations for future rate hikes. Special mention to the pound, which held off bette

Oil currencies outperform, buoyed by rising energy prices Last week provided strong validation for our view that inflationary pressures will be here for longer than G10 central banks expect. Oil prices, and the energy complex in general, rose strongly for the week, as did sovereign bond yields worldwide, driven higher by rising inflation expectations. For now, risk assets are weathering the storm, and most equity indices eked out a win for the week. Notably, the dollar failed

Sterling slides GBP: Sterling was the worst-performing currency in the G10 yesterday, dropping against both the dollar and the euro. Sterling faced an almost perfect storm as rising yields in the US combined with concerns about UK energy costs and supplies. Further Brexit-related disputes also unsettled the markets. The fear in the markets is that the UK is potentially facing a period of stagflation, in other words, inflation with slow economic growth. This morning, sterling

Norwegian Krone soars as Norges bank hikes rates We have been pushing for a while the idea that currency markets will now be mostly, if not exclusively, about the relative pace of central bank policy tightening, with inflation data a close second. In line with this narrative, the Norwegian Krone was the week's best performer on the back of the first G10 hike of the cycle by Norges Bank. We add that market expectations of what these central banks will do and say seem to be rem

Weekly US employment report dents dollar, puts Federal Reserve in a bind The Federal Reserve cannot be happy with the US payroll report for August. Weaker than expected employment growth shared the headlines with strong wage gains, suggesting that inflationary pressures will not be as transitory as it hopes. The US dollar promptly sold off even as US yields rose, a reversal of the usual correlation between the two. Risk assets put in a mixed performance last week. Commodities

Powell dovish Jackson Hole speech fails to boost the dollar The key event of last week was as expected the Jackson Hole conference of central bankers. Powell's generally dovish speech sent most major currencies higher against the US dollar, as it suggested that the Fed Chair remains unconcerned by the recent spike in inflation and is in no hurry to remove accommodation, let alone raise rates. Risk assets rose in response, led as usual by equities and commodities, the dollar f

Germany weighing on the Euro GBP remained range-bound in Wednesday trading ahead of the bank holiday weekend. A new survey of UK business activity indicates that 60% of businesses in the hospitality and leisure sector are projecting a surge in revenues over the long weekend – another sign that consumer confidence is returning and that UK economic growth is set to continue. The economic calendar is very quiet for Sterling this week, and GBP should trade mostly in reaction to e

Sterling Maintains Gains GBP experienced a very quiet day, although it managed to hold onto gains made Monday. Investors seem to be ignoring the higher daily Covid cases in the UK and with a lack of economic data out this week Sterling is benefitting from Dollar and Euro weakness. Sterling could have further gains in store, with Key data/events happening in the EU and US this week. EUR extended its gains vs USD, mostly due to Dollar weakness than Euro strength. The market is

Economy concerns continue GBP started Monday with limited gains against EUR & USD after signs that the UK’s economic rebound slowed in August. The Flash PMI reading showed a greater-than-expected slowdown with the Services PMI reading at 55.5 vs expectation of 59.0 (compared to 59.6 in July). Whilst a reading above 50 still represents growth, the slowdown initially limited Sterling’s gains before GBP continued to climb mid-afternoon due to increased risk-on sentiment in globa