- Markets in risk-off mode after outage
- Biden withdraws from Presidential race
- Gold and oil feel the heat of strong dollar
Dollar Rallies on Haven Flows
The US dollar traded higher against most of its major peers on Friday, although its advance was paused today.
With Fed fund futures indicating very little change in market expectations about the Fed’s future course of action, the dollar’s rally seems to have not been driven by developments linked to the Fed’s plans.
Perhaps the world’s reserve currency enjoyed some safe-haven flows following the chaos related to a global technical outage. This is supported by the fact that the yen, a traditional safe haven, was the only currency that didn’t lose ground against the dollar.
Biden Drops Out, Endorses Kamala Harris
The dollar rally came to a halt today, perhaps due to President Joe Biden’s decision to withdraw from the re-election race, opening the door for another Democrat to face Donald Trump.
Biden endorsed Vice President Kamala Harris to take his place, who quickly received support from many party members, although a few, including former House of Representatives Speaker Nancy Pelosi, stayed quiet.
Now, the attention is likely to turn to incoming opinion polls, where a decline in odds for a Trump win could weigh on the dollar and vice versa. Trump has pledged to lower taxes and increase tariffs on imported goods from China, both of which are inflationary measures.
Thus, a Trump win could force the Fed to proceed with a slower rate-cut path, thereby keeping Treasury yields high for longer and adding support to the US dollar.
But besides incoming polls, this week, dollar traders are likely to pay attention to the flash PMIs for July, the first estimate of GDP for Q2, and the core PCE price index, which is the Fed’s favorite inflation metric.
Wall Street Slips After Outage, Earnings Awaited
Wall Street indices slipped on Friday due to the increased anxiety following the technical outage, something also evident by the fact that the CBOE market volatility index (VIX) surged to levels last seen back in April.
The Dow Jones suffered the most, followed by the tech-heavy Nasdaq, as the outage affected operations across multiple industries including airlines.
This week, equity investors may shift their focus to earnings results from Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) on Tuesday.
Gold and Oil Suffer as Well
Gold did not act as a safe haven on Friday, falling victim to the strengthening US dollar. However, it rebounded somewhat today perhaps due to President Biden’s decision to withdraw from the 2024 presidential race and after Israel's attack on Houthi targets in Yemen.
That said, today’s rebound was minor, suggesting that with the precious metal near record highs, the PBoC pausing its purchases, and the Middle East ceasefire talks set to resume on Thursday, investors decided to lock some profits for now.
Oil prices also slipped on Friday due to a stronger dollar, as well as concerns over the Chinese economy, the world’s top oil importer.
At the end of a key Communist Party meeting last week, officials pointed to a bumpy road ahead for policy implementation, although they did not offer concrete stimulus plans.
The PBoC’s surprise decision today to lower its key policy rate and its benchmark lending rates did little to help black gold.