Asset Watch
Thursday, November 24, 2022
As a result, inflation is still materially elevated, and investors may underestimate the peak U.S. federal funds rate. Higher interest rates increase the dollar’s appeal because foreign allocators may purchase the greenback to invest in higher-rate U.S. bonds.
So, while the S&P 500 will soon have to decide if it can recoup its 200-day MA, the EUR/USD may provide important clues about risk appetite. If risk-on currencies like the euro struggle, the FX market’s hesitation could cascade across other assets. If not, a weaker U.S. dollar is often the green light for higher asset prices, especially commodities.
Therefore, will the EUR/USD achieve something it hasn’t since June 2021, or will the Fed’s war with inflation ensure that risk-off reigns for the next several months?