Last week stock market development had a bigger impact on currency sector in the form of pressure on high-yields assets and more active demand for US dollar as a protective asset, a market analyst believes. Today risk-off policy has taken a back seat, and stock markets are attempting to recover, which affected interest in the US currency. However, it is highly probable that stock market weakening is yet to run dry after the longest upturn, so the greenback has a good chance to leap.
Once stocks have faced new selloffs confusing many investors these days, insiders are careful now and do not rush to buy cheap stocks. The investors’ mood can weaken dramatically again even before it has improved, while bond yields can resume rising entailing new risks of more active monetary tightening by global central banks.
As things stand, commodity currencies are under the major risk being additionally depressed by the oil market on risk-off steps. However, European currencies can also move down if the US dollar will get a firm foundation for its rebound.
In this context, a lot will depend on the US inflation data to be announced this Wednesday. If consumer prices show a slower increase after the December hike, investors will somewhat calm down and bulls will become disappointed with the US dollar. Otherwise, risk assets will face challenges.