- The dollar is gaining strength, boosted by speculation around Fed rate hikes and risk aversion
- Gold is being impacted by rising yields, while the Japanese yen is affected by central bank disparities
- Stocks close lower, but Nvidia’s earnings bring markets back up after-hours
The dollar benefits from increasing Fed bets
Although some Fed officials believe that further tightening is necessary, others would like to pause their rate hikes. Regardless, everyone agrees that discussing rate cuts is premature. The market currently assigns a 30% probability for the Fed to hike in June, rising to 65% for July. With greater emphasis placed on recent economic releases and business surveys, the US dollar is experiencing a resurgence, aided by safe-haven flows and the notion that the US economy is outperforming Europe. If markets remain volatile or the upcoming jobs report highlights the resilience of the US labor market, there is potential for the dollar to continue surging.
Rising yields affect gold and yen
Rising Fed bets further hinder the Bank of Japan’s hesitance to tighten, impacting the yen. Although sovereign gold purchases by nations with turbulent relations with the West have provided a floor under gold prices, the metal is struggling to attract buyers due to increasing real yields and a strong US dollar. Any decrease below the $1,950 region could prompt a further downturn to $1,915, though a future recession or Fed rate cuts could stimulate gold’s revival.
Nvidia boosts the stock market
Major stock market indices briefly dipped before Nvidia’s after-hours earnings report shook things up. The tech company’s earnings greatly surpassed expectations, and it boosted its revenue forecasts. Consequently, Nvidia shares skyrocketed by 25%, setting a new record high and reviving the Nasdaq’s losses for the week. Nonetheless, some are concerned about the few companies supporting the indices, exacerbating existing valuation concerns. A ‘reality check’ may await once liquidity descends after a debt ceiling deal is brokered this summer.
The debt ceiling impasse prompts credit agencies to take action
Fitch has plunged the US into ‘rating watch’, warning of a downgrade should no deal be brokered in time.