US futures markets continued to move despite the Martin Luther King holiday.
Expect some immediate stock buying when traders return on Tuesday. Europe had a strong session and market sentiment continues to see the glass as half full despite being almost empty on the economic fundamentals front.
Gold benefits from the idea that the US dollar will continue to weaken. As well as the remaining alternative reserve uncertainty hedge against the US dollar.
With the US economy in such bad shape and only getting worse throughout 2023, the question has to be asked as to why buy US dollars as a hedge and safe haven against all the global economic uncertainty ? Especially since most of the recent economic troubles appear to have originated in the US economy. Highly leveraged asset and housing markets are reeling as consumers continue to experience falling real wages.
The euro and Australian dollar have both appreciated extremely strongly against the weakening US dollar of late. Much of this is based on the mistaken belief that the Federal Reserve will dramatically slow, pause, or even reverse its rate hikes. It is more likely that the Fed will continue to hike 50 points to get the whole process out of the way as quickly as possible while ensuring inflation is halted in its tracks. Therefore, a significant oversold situation could develop in relation to the greenback.
The larger backdrop is the glaring reality of a faltering US economy overlaying massive fiscal, trade and current account deficits, with both services and manufacturing likely to contract at this point.
Why buy the currency of such a catastrophic economy?
There are three reasons. 1. Historical precedent continues to influence sentiment as the ultimate reserve currency in times of uncertainty. 2. Corporate America brings funds home in a globally uncertain environment. 3. Significant interest income benefit.
These are enough to trigger another significant US dollar rally from current levels.
In the long term, however, the fall of Rome always leads to a collapse of the currency. In a big way. Coming soon to a screen near you.
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