US futures markets continued to move about despite the Martin Luther King Holiday.
Expect some immediate buying of stocks upon traders return on Tuesday. Europe had a strong session and market sentiment continues to see the glass half-full, despite it being almost empty on the economic fundamental front.
Gold has been capitalising on the idea that the US dollar will continue to weaken. As well as remaining the alternative reserve uncertainty hedge to the US dollar.
Given the US economy is in such a bad way and only getting worse as we move through 2023, the question that must be asked is why be buying US dollars as a hedge and safe haven against all the global economic uncertainty?
Particularly as most of the latest economic problems seem to be arising from within the US economy. Highly leveraged asset and property markets are unravelling as consumers continue to experience collapsing real wages.
The Euro and Australian dollar have had extremely strong gains against the faltering US dollar of late. Much of this has been based in the false belief that the US Federal Reserve will slow its rate hikes dramatically, pause or even pivot. It is more likely the Fed will continue to hike at 50 points, to get the whole process out of the way as quickly as possible while ensuring stopping inflation in its tracks.
Therefore, a significant over-sold situation could be developing with regard to the Greenback.
The bigger backdrop, is that blaring reality of a faltering US economy overlaying massive fiscal, trade and current account deficit, with both services and manufacturing both likely in contraction right now.
Why buy the currency of such a disastrous economy?
There are three reasons. 1. Historical precedent continuing to sway sentiment as the ultimate Reserve currency in times of uncertainty. 2. Corporate America bringing funds home in a globally uncertain environment. 3. Significant interest rate yield advantage.
These are enough to trigger yet another significant US dollar rally from current levels.
Though, in the long run, the fall of Rome always leads to a collapse of currency. In a very big way. Coming to a screen near you soon.
