Currency in Focus

💰Dollar in a chill season🌴

The strength of the dollar has become a headwind for the equity market. The robust performance of the US dollar is attributed to the growing concern about the global economy. The DXY, the dollar index, had risen to 108, a multidecade high, rising about 17% over the past year.

It is likely to bite into US companies’ profit as the overseas sales become lesser in dollar terms. Based on some estimates, a percentage rise in dollar on a y-o-y basis tends to reduce 0.5% growth in S&P 500 earnings per share.

Pika World will be cautious as we enter a possible period of corporate earning recession as haircuts on companies’ performance set in.

📉Euro- Falling stars from the sky⛳

Much had baked into recovery for the Euro region, only to be disappointed with the circumstances disparity between Europe and the US. As a result, the Euro is now fighting in parity with the US dollar as dark clouds gather in the region.

Concerns about the energy crisis had worsened with Russia’s invasion of Ukraine. As Russia shut down the natural gas distribution in the Nord Stream 1 for maintenance, many feared the supply end as Moscow sought to retaliate for the West’s harsh sanctions on its country. This could translate to higher pump prices.

On the contrary, the Fed Reserve is on an aggressive path of a rate increase, strengthening the dollar considerably. Analysts are quick to pile up on commentary about European consumers. Pika World expects household consumption to remain fragile given the high inflation and volatile energy supplies, and tightening financial conditions dent sentiment.

With the backdrop of a weakening global demand, corporate activity may dwindle, dimming the European economic outlook. While the weakness of the Euro is a blessing for exporters, it is a nightmare for ECB in its fight to calm inflation. As a result, it is unlikely for ECB to keep pace with the Fed rate increase, thus reducing the Euro’s appeal.

🍎All eyes are on the CPI🗽

We will welcome the latest CPI data, and we are hoping for some signs of relief in the inflation scare. Persistent high inflation will give the Fed ammunition to continue its hawkish tone while sending the equity market on a downward spiral.

The data will be released at 8.30 pm in Singapore time.