USD reigns supreme

Today we’ll cover:

• Central banks policy divergence laid bare
• USD reigns supreme for now as FOMC hold a hawkish tone
• Higher for longer the theme but peak in rates seems close
• Recession fears dominate

Well I suggested volatility and, crypto markets aside, I have not been disappointed. In a week dominated by central bank decisions the market expectation/hope from all the major decisions proved wrong.

The BOE and SNB were expected to hike and both refrained hinting at a top in place for rates but holding higher for longer. The BOJ yet again did nothing whilst moaning about the yen like a child who has dropped its dummy. Either pick it up or keep crying is the point we are at, and I suspect if/when usd/jpy trades at 150 the BOJ will intervene and pick its dummy up off the floor.

The FOMC held unchanged as expected but the dot plot (frankly an utter work of fiction) indicated the door is wide open to one more hike and very few, if any, cuts next year. Powell showed no signs of softening his stance and recession fears have come to the surface once again.

Stock markets have broadly had a terrible week(FTSE aside as the UK breathed a sigh of relief) and there will be few traders and investors sad to see the back of September. The USD has broadly gained as rate differentials dominate, but progress has been lacklustre thus far as we approach the years high for the USD index.

It has been a tough week for my “ease into usd shorts” trading mode but I still like it overall. Momentum higher will be hard fought from here and I remain in the camp that the USD finishes the year 5% lower than here and stocks 7% higher.

Crypto has held up remarkably well in this environment all things considered. Watching the mad rush in traditional markets one can’t help wondering how different things will be in 20 years time when the genuine alternative to money dominates ( we can only hope). Not much more to say here as specific news has been thin on the ground but with my views on the USD and stocks laid out above you do not need to be Einstein to figure out I am in dip buying mode for crypto still.

Good luck as always

Rich

Richard Usher
Head of OTC Trading