Dollar Gains as Emerging Markets Hit Turmoil

Published on: 08/17/18 9:34 AM

Category: Uncategorised

The United States dollar soared as emerging markets hit a speed bump. As trade wars around the world heat up, investors have sought the safe haven of the dollar. Despite a lull in local data, the dollar has risen as risk appetite has fallen across financial markets. At the same time, the ongoing Sino-American trade war has soured investors’ desire for the dollar. The greenback reached a 14-month high as emerging markets were struck by ongoing turmoil in Russia and Turkey.

In the coming week, analysts expert continued volatility. Consumer confidence data and retail sales will set the stage for the Federal Reserve’s policy, but it would take a surprising turn in the data to change the Fed’s expectations for the coming quarter. This month, there will also be the Economic Symposium in Jackson Hole, Wyoming. This symposium will most likely drive the narrative for the coming month. At the moment, the Federal Reserve looks prepared for a rate hike in September. The probability of another rate hike in December is pegged at 60 percent.

Bond auctions are getting a lot of attention this week because of borrowing costs. The United States Treasury will be financing a large deficit, a $300 billion spending increase and a $1.5 trillion tax cut from the Trump Administration. These costs have growth-negative implications for the coming months. Meanwhile, the dollar dropped as yields dropped following a stable demand for the 10-year note. Last week, there was a record-setting sale of the popular note.

The release of the TIC capital flow data for June is expected to be interesting for investors. Over the last two years, net foreign purchases of United States securities and bond yields have increased. This indicates that the higher returns are bringing in a larger demand. As the Treasury increases debt issuance, this might indicate a decent uptake for the debt. If this keeps a pressure on borrowing costs, it might limit appreciation for investors.

Turmoil in other marketplaces may impact the global markets and the Untied States. Right now, the United States is in tense conflicts with Turkey, Iran and Russia. Those conflicts have not been resolved, and investors are also concerned about a Sino-American trade war. Washington and Beijing continue to increase tariffs, which will impact the global marketplace. At the moment, it seems like the Untied States might have an accord with Japan to avoid automobile import tariffs. While this might provide a brief rally, risk aversion will remain high because of the ongoing turmoil and trade war.