U.S. Dollar Strong Despite Carnage
The U.S. Dollar traded slightly lower amidst a very bizarre day in history. Equities went into an absolute whirlwind during the FOMC meeting, the Fed hiked 75bps (its largest hike since 1994), and oil traded lower for once? Like I said it was a very bizarre Wednesday for all of those involved. The consensus has been by pretty much all parties that we are about to enter a recession, especially given the fact that the Atlanta Fed had cut their Q2 GDP forecast to…drumroll please…ZERO.
Alright, well now that we have that addressed, eyes have been keenly watching the U.S. Dollar. Throughout much of the carnage that has unfolded throughout much of this year, The USD has remained robust and withstood the test of soaring inflation, decreased consumer sentiment, and macro outlook about as shitty as it gets.
Meanwhile, while the USD remains stronger against other baskets of currencies, capital markets (amongst other risk-off trades) have just been getting absolutely torched. Although there was some reprieve in the markets today (S&P closed up nearly 1.5% lol), it officially entered bear market territory on Monday. The USD has remained strong (on a relative basis) just because there is seemingly much more carnage that is unfolding in other parts of the world. The U.S. isn’t the only country that is ridden with inflationary pressures, decreased economic sentiment, and economic headwinds ahead. Most of the Euro-zone are facing these problems, along with Turkey (F in the chat), and the United Kingdom. This, coupled with the fact that the Yen has just gotten absolutely clobbered while the BoJ has continued full steam ahead with absolute heinous quantitative easing has propelled the USD to levels not seen since ’02, and at all time highs when compared to the Yen. The USD/JPY hit an all time high of 136.19 on Monday. AMERICA IS BACK BABY.
What’s interesting regarding this bull run we’ve seen in the U.S. Dollar, is that it’s a stark contrast to the GFC, where dollar shorts absolutely reigned supreme. A higher interest rate environment, and global carnage outside of the United States has driven investor confidence in the U.S. Dollar, even after the most heinous QE undertaking known to man.
The PPI print of 10.8% is still worrisome for consumers as we are still likely to see higher costs incurred by producers to be passed down to the consumer. That is, assuming that producers don’t absorb those costs themselves. But it’s likely that won’t be the case. With that being said, that has seemingly helped propped up the USD. Treasury yields have remained fairly strong throughout the week, further boosting the USD. And to quote the most goated investor of all time, Jim Cramer, “There is always a bull market somewhere.” And right now that bull market is in the U.S. DOLLAR BABY.