The US dollar may skyrocket in the coming week as market-wide anxiety grips investors following the ongoing Russia-Ukraine war and hawkish remarks from the FED. The anti-risk Japanese Yen and Swiss Franc may benefit from an uptick, but the Greenback might have the edge over its rivals because of its enormous liquidity.
Following remarks from the Fed that it has a hawkish view despite a slew of volatility-inducing events, markets fell last week. The S&P 500 gaped lower on Monday, but it recovered and closed in the green. Risk aversion dominated across asset classes in the stock market, and the US Dollar, Swiss Franc, and Japanese Yen rose against most G-10 currencies.
Commodity-backed currencies
Commodity-linking or commodity-backed currencies have taken a beating, such as the Swedish Krona, Norwegian Krone, and Australian and New Zealand Dollars. This trend is expected to continue. Investors may notice this dynamic increase in the weeks ahead, but what might be the most significant market movers?
The French election’s conclusions and market reaction
The market’s response somewhat overshadowed French President Emmanuel Macron’s win. The day after the news, the Euro and regional stock markets were subdued. Traders were most likely pricing in a win for the incumbent, and with that risk out of the way, European equities are now focused on broader macroeconomic issues (like interest rates).
Russia and Ukraine update
In Ukraine, the strategic port city of Mariupol has been mostly recaptured by Russian troops, and the Azovstalmetallurgic plant is now the main topic of conversation. According to reports, the Kremlin may be preparing a fresh offensive to take control of Ukraine’s industrial complex.
On Monday, US Defence Secretary Austin stated that he hopes to see a ‘weakened’ Russia after Moscow’s aggression against its Slavic neighbor. Although Washington has shown no intention of sending its troops or NATO’s, weapons have been given to Ukraine, and promises of continued assistance has been made, much to the chagrin of Moscow.
It has been a cause for considerable alarm between Russia and the United States, who were already on bad terms before the invasion. The row, however, has exacerbated the rift between Washington and Beijing, an already tenuous relationship following Trump administration trade conflicts.
If China provides material support to Russia, its officials were warned that sanctions might be triggered. During the Friends of Europe conference panel discussion, United States Deputy Secretary of State Wendy Sherman delivered a stern statement to Chinese officials: „To date, you’ve come up with no credible alternative. You have made promises, but none have been fulfilled,“ she said.
Military gear must be secured in a trustworthy relationship in Sino-Indian ties and during a worldwide inflation surge amid disrupted supply chains. These continuing discussions show how, in the age of globalization, it is unusual for issues to occur in one region of the world without affecting policy or markets in other parts.
US and eurozone CPI and GDP data
If the data are good, investors will be encouraged to keep buying the Euro in hopes of another interest rate hike from the European Central Bank. If this happens and traders believe that the ECB may have to reconsider its rate increase plans, the Euro’s value may plummet against the US Dollar. The Euro has fallen dramatically this week following the comments from central bank President Christine Lagarde that monetary authorities may need to reduce their growth projections due to the Ukraine conflict.
It came on top of the Fed’s hawkish comments, which saw EUR/USD plunge as money market speculators piled up bets for ultra-fast rate hikes in 2022. This week, GDP and personal income/spending statistics are expected to be released, adding to the pair’s volatility if they confirm the Fed’s dovish sentiment.
The US Dollar will benefit from two narrative forces if the US economy surprises the upside. The first is the notion that robust economic data will buttress and perhaps even boost a Fed outlook that is already hawkish. The second is linked to the first: when markets panic due to tighter credit conditions, investors may be compelled to seek refuge in the Greenback.
EUR/USD technical outlook
It is the lowest level since March 2020, when gold traded at 1.0697 USD/EUR during one of history’s most significant financial market sell-offs across asset classes. The pair’s decline began in January 2021, but a steeper bearish slope emerged in May, and the fall accelerated. On Monday, the EUR/USD pair experienced its most significant one-day drop since March 31, 2022.
