Dollar demand may recover amid Stock rally
2023.01.28 03:17
Dollar demand may recover amid Stock rally
By Tiffany Smith
Budrigannews.com – In its efforts to gain ground on rivals, the dollar has been dealt blow after blow, but as U.S. stocks gain ground on European rivals, the greenback is finally beginning to look “appealing.”
The, which compares the dollar to a basket of six major currencies that is weighted by trade, increased by 0.1% to 101.72.
According to Forexlive, Danske Bank stated:
“We think a long USD position is beginning to look appealing again, perhaps even from a tactical perspective.”
As a source of optimism for the dollar, the bank cited Eurozone stocks beginning to underperform U.S. peers and losing steam.
Amundi points to expectations that the Eurozone will still churn out economic growth, underpinning earnings while central banks will pause from hiking rates as the basis for much of the outperformance in January, which has been based on a “Goldilocks scenario.”
However, European stocks are not pricing in the fact that the ECB will need to keep raising rates because they will continue to be high, casting a less hopeful picture for corporate earnings.
Amundi Chief Investment Officer Vincent Mortier told:
“We could expect a consolidation of 15% to 20% from current levels” on European equity indices. He added that while the rally could continue for months or weeks, “the drop, the normalisation, will happen.”
Expectations that there may not be solely one-way traffic higher for European stocks are supported by the recent rally in U.S. stocks in comparison to their European counterparts. There have been indications that European stocks have underperformed their American counterparts over the past week, rising about 1% versus the 2.4 percent gain.
However, there are a lot of people who would characterize any underperformance in European stocks as an anomaly and point to the rapid inflow of investments into Europe.
In a note, Bank of America stated that investors poured $3.4 billion into European stock funds during the week ending Wednesday. It added that the inflows into European stocks were the highest since February 2022.
However, unless the Fed delivers an unlikely hawkish surprise next week, others believe there is no catalyst for the dollar’s decline to reverse.
“The bar is high to turn off the status quo, barring a 50bp hike or a conditional commitment to stop tightening. TD Securities stated, “USD is stretched and oversold, but there is no catalyst for a reversal.”
