News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Bullish
Gold
Bearish
GBP/USD
Bearish
USD/JPY
Bullish
More View more
Real Time News
  • The US Dollar is pulling back from what’s become a strong outing in the month of September. Get your $USD technical analysis from @JStanleyFX here:https://t.co/hOvSiIDFLT https://t.co/d0SEnfJT0s
  • webinar starting right now - looking at 1. themes for q3 close 2. debates starting tonight, what might market ramifications be? 3. heavy week of data out of the us - $USD in the spotlight https://www.dailyfx.com/webinars/455809179 https://t.co/tZxa4c2zVl
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.20%, while traders in US 500 are at opposite extremes with 62.11%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/9tCHS7o18f
  • Heads Up:🇺🇸 Fed Williams Speech due at 17:00 GMT (15min) https://www.dailyfx.com/economic-calendar#2020-09-29
  • Commodities Update: As of 16:00, these are your best and worst performers based on the London trading schedule: Silver: 1.93% Gold: 0.62% Oil - US Crude: -4.59% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/674URQqbej
  • Forex Update: As of 16:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.49% 🇪🇺EUR: 0.41% 🇳🇿NZD: 0.37% 🇬🇧GBP: 0.05% 🇯🇵JPY: -0.17% 🇨🇦CAD: -0.33% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/NLmATP58eY
  • Trader confidence is relatively buoyant in the currency markets, benefiting FX pairs such as EUR/USD, GBP/USD and AUD/USD at the expense of the safe-haven US Dollar. Get your market sentiment update from @MartinSEssex here: https://t.co/ir7hXNfxec https://t.co/2IwbcrkrM5
  • Join @JStanleyFX 's #webinar at 1:00 PM ET/5:00 PM GMT for his weekly update on trading price action. Register here: https://t.co/ZCcMdyaTsB https://t.co/xn5x2AG5vI
  • Indices Update: As of 16:00, these are your best and worst performers based on the London trading schedule: FTSE 100: -0.16% Germany 30: -0.17% France 40: -0.17% US 500: -0.63% Wall Street: -0.81% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/z1qnxoAWz7
  • Reports of German Chancellor Merkel saying EU recovery funds will be increasingly delayed came just as $EURUSD was struggling with former support (H&S neckline) as new resistance. When fundamentals and technicals converge... https://t.co/BDvM9DXBW6
The (Big) Problem with a Stronger Dollar

The (Big) Problem with a Stronger Dollar

2013-06-20 23:00:00
Kathy Lien, Technical Strategist
Share:

The Fed-inspired US dollar rally has caused tremendous volatility across the world’s financial markets, and virtually nothing, from equities to commodities to currencies, was safe from massive price swings.

The US dollar (USD) continued to power higher against all major currencies, wreaking havoc across the financial markets in the process. While we can't blame all of the volatility on the dollar since ten-year US Treasury yields also spiked above 2.4%, the latest moves have unsettled investors around the world.

Consequently, the S&P 500 dropped 2.59%, European equities fell 3%, and major indices in Asia lost anywhere between 1.5% and 3%. Most of this weakness can be attributed to the spike in global bond yields, which boosted the cost of borrowing around the world. This accelerated deleveraging in the forex market, and dollar strength only added to the pain.

See also: A “Major Turning Point” for the Dollar

The rally in the US dollar has driven the Australian dollar (AUD) to a fresh 2.5-year low and the New Zealand dollar (NZD) to a one-year low, but the biggest moves were in commodities. Gold prices fell more than 5% and silver prices a whopping 8%. These are the lowest levels seen in both commodities since September 2010. Even oil prices fell 2.9% and closed near $95 a barrel.

While the world may wind up thanking the Federal Reserve for keeping inflation at bay and boosting the US export sector by weakening the currency, right now the focus is on volatility and its impact on confidence.

Central banks around the world are not going to be happy with the pace of depreciation in their respective currencies, as well as the spike in bond yields and decline in stocks. Unfortunately, given the amount of re-pricing that needs to occur, the latest moves could extend further.

However, the selloff in US stocks and the panic across global markets are not completely justified.

Investors should realize that the Federal Reserve is planning to reduce asset purchases due to increased confidence in the US economy. The latest upside surprises in the Philadelphia Fed survey and existing home sales only supports that decision.

The central bank would not be taking steps that will drive Treasury yields higher if policymakers did not feel that the US economy and corporations could handle it. So eventually, the selloff in US stocks should stabilize, allowing US yields and the dollar to hold on to their gains and grind slowly higher.

Big Problems Brewing in China, Too

Meanwhile, the "cash crunch" in China has only made investors more nervous. Interbank overnight lending rates in China spiked to a record high of 13.44%, up from 7.66% the previous day!

One month ago, the rate that banks used to borrow from each other was less than 4%. The rise in the interbank rate began two weeks ago before a three-day holiday when demand for cash increased and rates followed.

In the past, the central bank would inject money into the system to offset demand, but when they refrained from doing so, rates started to climb higher, and the situation was made worse by weakening economic data.

Now China finds itself in a liquidity crunch and begging for the central bank to step in. Unfortunately the People’s Bank of China (PBoC) refuses to do so because it wants to punish speculators and is in the midst of reforming the economy. The longer the banks hold off, however, the more disruption it will have on China's economy and the global financial markets.

By Kathy Lien of BK Asset Management

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES