Market Chaos: Why is the Dollar the Only Safe Haven?
Market Turmoil and Currency Volatility
The markets opened the day with losses and nervousness prevailing.
In Asia, all stock indices are closing the session deeply in the red, also shaken by the yen’s tumble.
The risk appetite is under pressure, and even major tech companies have been hit in recent trading in the United States.
The disappointing outlook for Micron Technology, down 8% in after-hours trading, triggered a negative sentiment.
Also, futures on American and European stocks are down.
In a context of dollar strength, Asian currencies have dropped to their weakest levels in the last 19 months.
On the other hand, the greenback rose yesterday to highs since November, fueled by speculations that the Federal Reserve will maintain the interest rate differential with other central banks and keep interest rates high.
The Strong Dollar, Nervous Currencies, and Red Stocks
The yen is stabilizing after yesterday’s fall to its weakest level since 1986, triggering new speculations that officials will intervene to support the currency.
However, it seems that the currency’s decline won’t stop until the Fed abandons its path of rate hikes for a longer period.
The market is nervous due to the sharp increase in yen volatility.
Options show that investors are demanding a premium to protect themselves from sudden movements, and bearish bets on the yen are increasing.
The strong buying interest for the greenback pushed the USD index to capitalize on Tuesday’s gains and advance to multi-week highs beyond the 106.00 barrier on Wednesday, exerting significant pressure on risk-sensitive assets and sending the EUR/USD to new monthly lows near 1.0660.
An indicator of emerging market currencies has dropped to nearly a two-month low, and that of Asian currencies has slipped to levels last seen in 2022 with the dollar’s strength.
Treasury yields extended their recent declines on fears that Friday’s US PCE data will show that inflation remains high.
“It all depends on the Fed: a higher level for longer means keeping rates very high, attracting money into the US, and keeping the dollar strong,” said Andrew Brenner, head of international fixed income at NatAlliance Securities LLC.
The instability also came from tech stocks, which have been the top performers so far.
Micron Technology plummeted after the computer memory chip maker forecasted lower sales than the estimates of some investors.
The news dragged down some chip producers, including the giant Nvidia Corp.
The stock market relies too much on big tech, according to David Bahnsen of The Bahnsen Group.
“It remains to be seen whether last week’s volatility in the tech sector is the beginning of something deeper or if the reckoning is coming, but investor over-exuberance, euphoria, and exaggerated momentum always end the same way,” he warned.
