Investors remain cautious amid geopolitical tensions, volatile global equities and a sharp rise in gold, which has risen more than $100 to $4865. While the US dollar (USD) is only modestly strong, concerns over Fed autonomy, sticky inflation and rising yields could further cut US asset exposure in the coming months, report Sean Osborne and Eric Theoret, chief FX strategists at Scotiabank.
Fed independence comes into focus amid rising market risks
“There is clearly still a broad sense of unease among investors who are worried about Trump’s Greenland ambitions and their potential fallout. Non-major major currencies, which underperformed yesterday, have jumped to the top spot in the FX performance table overnight, while the major majors – yesterday’s leaders – have slipped. CHF is the weakest among the majors on the day, while KRW, ZAR and MXN are the leaders. Global equities are volatile – in Asia “Mixed and lower in Europe While US futures are strong, bonds are also mixed, but Japanese government bonds are up after yesterday’s heavy losses.”
“Let us tell you that investor concerns are still high, with gold gaining more than $100 to $4865. The risk of mass ‘weaponization’ is low, we believe.”
“But there are plenty of other risk factors – the President’s choice to replace Fed Chair Powell, sticky inflation and rising bond yields and the calendar risks facing elevated US equity markets in this midterm year – that could still prompt investors to reduce their exposure to the USD and/or US assets in the coming weeks and months. SCOTUS today responded to President Trump’s pressure to fire Fed Governor Cook. “This case could raise investor concerns about the Fed’s operational autonomy.”
