Currencies

The narrative that the US can tolerate much higher interest rates, compared to the rest of the world has helped the dollar in 2022. In this report, we examine the sustainability of this thesis, from our holistic assessment of global growth indicators.

The kinked supply framework helps explain why US inflation rose so suddenly shortly after the pandemic began and why the economy is likely to experience a benign disinflation over the next six months.

In this report, we identify the Norwegian krone as a currency that could outperform especially at the crosses, irrespective of the broad dollar trend.

Stocks will only get temporary relief from gridlock. Inflation will abate but then remain sticky. US and global policy uncertainty and geopolitical risk will remain historically high.

CBs proved to be savvy buyers of gold over 3Q22, scooping up record volumes of the metal as prices remained weak. The exorbitant privilege accorded the USD’s reserve-currency status will continue to erode as EM states move to insulate themselves against US financial and trade sanctions being turned on them. Based on our modeling, we believe as long as the Fed is intent on keeping the real effective USD exchange rate and real UST rates positive, demand for higher CB gold reserves will persist. Given this view, we are getting tactically long gold at tonight’s close.

A client concerned about the slump in asset prices, the stubbornness of inflation, and rising bond yields asks what went wrong, and what happens next? This report is the full transcript of our conversation.

Central banker messaging after the latest rate hike announcements in the US, UK and Australia indicates a shift in focus from the pace of hikes to how high rates must rise to slow growth and bring down inflation. This represents the next stage of the global tightening cycle, where rates will go higher in countries where neutral rates are higher, like the US, compared to countries with lower neutral rates like the UK and Australia.

The HK dollar is under an assault from rising US interest rates and a weak economy. To defend the exchange rate peg, the HKMA will continue to tighten liquidity, which will boost HK interest rates above those in the US across the entire yield curve. That will cause major damage to this economy and HK-domiciled companies' stocks. Downgrade the MSCI HK equity index within a global portfolio from neutral to underweight.