The U.S. Dollar is thriving in the midst of what seems to be one of the biggest stock market routs in history.
Thus far, global equities have experienced their worst three-day performance since 2015, but this fall keeps going. In Japan, NIKKEI stocks lost 4.5% of their value, their worst day since 2016 and European markets are following suit.
For many years, the stock markets were fueled by the assistance of quantitative easing by central banks and low-cost credit. This correction seems to come about as investors gauge the toll of increased borrowing costs, higher interest-rate expectations. It looks like a panic, but it is more related to a pick-up in volatility and a different dynamic with the globe set to tighten.
As a result of the flight to safety, the greenback is recovering its losses, which were very steep in January. We anticipate that further support from economic indicators could lead to more USD strengthening if coupled with this current risk-aversion. Not much in terms of data points until next week, so most headlines will be focused on the markets tumbling from their record highs.
The Euro is suffering from the contagion that has sickened stock indexes, bringing down the Ancient Continent’s own Stoxx Europe 600 to its worst level since mid-2016. At one point during the trading session, every industry featured in the exchange lost 2.0% of its value. On a day when German Factory Orders had an impressive improvement and Purchasing Managers Index revealed a healthy state of the economy, the focus is on the volatile equity markets and the Euro is feeling no love.
Trouble in stock indexes has once again given rise to the Yen as a staple of the safe-havens. The stable currency climbed as much as 1.6% in the past week as day-traders have made for stellar and dramatic photographs on financial newspapers. For the moment, Yen has room to grow if the slide continues and thus far that is the case.