Dol­lar strength dom­i­nant, EM and Gold hurt by rate-hike talk

Financial Mirror (Cyprus) - - FRONT PAGE -

King Dol­lar was the main talk­ing point across fi­nan­cial mar­kets this week af­ter sharply ap­pre­ci­at­ing to its strong­est lev­els in five months. The com­bi­na­tion of ris­ing U.S Trea­sury yields and pos­i­tive do­mes­tic eco­nomic data en­sured Dol­lar strength re­mained a dom­i­nant mar­ket theme. With height­ened rate hike ex­pec­ta­tions fu­el­ing the up­side, emerg­ing mar­ket cur­ren­cies and Gold both felt the heat.

Speak­ing of Gold, prices fi­nally con­quered the psy­cho­log­i­cal $1300 sup­port level. The zero-yield­ing metal could be ex­posed to fur­ther pain if ex­pec­ta­tions con­tinue to in­ten­sify over the Fed pos­si­bly rais­ing rates four times this year.

In the United King­dom, Ster­ling was mostly de­pressed fol­low­ing the dis­ap­point­ing UK jobs re­port which clouded prospects of higher UK in­ter­est rates. With the Pound highly sen­si­tive to mon­e­tary pol­icy spec­u­la­tion, fad­ing ex­pec­ta­tions of a rate hike oc­cur­ring any­time soon are heav­ily on the cur­rency.

In­ter­est­ingly, Crude oil prices were in­cred­i­bly bullish this week de­spite the Dol­lar’s ag­gres­sive ap­pre­ci­a­tion. While op­ti­mism over ris­ing global de­mand may have sup­ported oil, price ac­tion sug­gests that the rally re­mains driven by geopo­lit­i­cal risk fac­tors. The loom­ing Iran sanc­tions are likely to fuel spec­u­la­tion of tighter global sup­ply, while height­ened geopo­lit­i­cal ten­sions in the Mid­dle East may spark fears of po­ten­tial sup­ply dis­rup­tions. Although oil could edge higher in the near term, ro­bust pro­duc­tion from US Shale has the po­ten­tial to cre­ate some head­winds for bulls down the road.

The ma­jor risk event this week was high-level trade talks be­tween the United States and China. China has re­port­edly pro­posed to pur­chase $200 bil­lion of Amer­i­can goods which could be seen as an en­cour­ag­ing step to­wards avoid­ing a trade war.

The up­com­ing trad­ing week will be jam-packed with ma­jor eco­nomic re­ports from the United King­dom, Europe and United States. Much at­ten­tion will be di­rected to­wards the UK in­fla­tion hear­ing and CPI fig­ures, as well as the GDP re­port, which could im­pact BoE rate hike ex­pec­ta­tions.

likely to weigh

Mar­ket play­ers will closely scru­ti­nise the FOMC meet­ing min­utes for fur­ther clues on (US) rate hikes this year. With the Dol­lar strength be­ing a ma­jor mar­ket theme, emerg­ing mar­ket cur­ren­cies may re­main vul­ner­a­ble to fur­ther losses.

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