Forex today: risk off, dollar rally

Fed Chair Kashkari Warns of Tightening; yields on 10-year Treasuries exceed 4%; Standard & Poor’s 500 Index Reaches Two-Year Low; The US dollar hits long-term highs against the euro and New Zealand dollar; IMF criticizes UK tax cut plan


Summary: Markets remain in the grip of risk-off sentiment, with the US dollar index and US Treasury yields hitting further long-term gains, and stocks and commodities crashing.

  • After the interest rate hike last week by the US Federal Reserve, the markets remained in a risk-off mode, with the US dollar index rising strongly to reach new multi-year highs, and stock and commodity markets firmly lowering. The yield on US 10-year Treasuries exceeded 4% for the first time since 2010, and the US dollar hit multi-year highs against the euro, New Zealand dollar, Swedish krona, Norwegian krone, South African rand and Turkish lira. The strong bearish trend in the EURUSD is particularly noticeable as this pair has a proven track record of respecting trends, so trend traders have been very interested in tracking this decline. The EUR/USD is likely to reach lower prices in the coming days.
  • The stock and commodity markets are performing poorly. The benchmark S&P 500 and Hong Kong’s Hang Seng both hit two-year lows, while gold and WTI crude oil also fell to significant new lows.
  • US Federal Reserve’s Kashkari added to the risk-off sentiment by commenting that there was “a lot of tightening in the pipeline”.
  • The British pound hit an all-time low against the US dollar shortly after the markets opened in Asia on Monday, with the GBPUSD pair hitting $1.0350 at one point before rebounding strongly to reach above $1.0900. However, the price has started to drop again, and it appears that it is trading somewhat bearish near $1.0650. The very strong drop in the pound was mostly caused by the UK government’s announcement of a plan to cut taxes by a historic amount, funded by massive borrowing. The markets do not like this plan, which has just been heavily criticized by the International Monetary Fund. UK yields are up significantly, UK credit rating is likely to be affected.
  • It now appears very likely that the breach of the Nordstream pipeline near Denmark was the result of targeted Russian military action. It does not seem likely to provoke a direct military response from NATO, but the incident contributes somewhat to the risk aversion environment.
  • Hurricane Ian reached Cuba, and its strong winds cut off the entire Cuban electricity grid. Hurricane Ian is expected to make landfall in the United States tomorrow in Tampa, Florida.
  • Yesterday’s US CB consumer data came in higher than expected, indicating that there is still strong consumer demand in the US despite the ongoing technical recession.
  • The numbers of daily new coronavirus cases globally fell last week for the 10th consecutive week, giving rise to hope that the pandemic is finally over in any sense. Last week, President Biden declared the epidemic “over.”
  • It is estimated that 67.9% of the world’s population has received at least one dose of the coronavirus vaccination, while nearly 7.9% of the world’s population has been confirmed to have contracted the virus at some time, although the true number is likely to be much higher. .
  • The total number of confirmed new cases of coronavirus worldwide has reached more than 621.2 million with an average case fatality rate of 1.05%.
  • The rate of infection with the new coronavirus now appears to be increasing dramatically only in Taiwan and Russia.
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