Earlier this week, we looked at a recent discussion at Brookings Institute which discussed how, in hawkish times, dollars (and euros) flow from higher risk, emerging markets back into ‘safer’ developed nations – in particular, the United States. This is called the ‘dollar coming home’ by economists.
Now analyst, radio commentator and emerging markets expert Jimmy Moyaha weighs in, ahead of Nonfarm Payrolls tomorrow and the GDP announcements of the Eurozone later today.
Moyaha on the ‘dollar comes home’ phenomenon:The trend makes a lot of sense, if you think about it from a risk point of view. Returns on the most widely used currency in the world – the US dollar – are at 40-year highs at a time when there is global uncertainty, sticky inflation and two wars raging on at the same time. That was the picture for most of 2023 and investors would have been looking to capitalise on the safer returns without taking on riskier assets, especially after a global pandemic.”
But is the trend over?It probably is, according to Moyaha.
I think we may see this trend begin to plateau. It may not fall just yet but I don’t see it going much higher. I think the narrative of immense uncertainty is clearing up, and markets have weathered the hardest parts of the storms thus far. We will instead likely see repositioning ahead of 2024 in the next two weeks.”
So, what’s a retail investor to do?Now may be the time for the range trade, or straddle, in your strategy. “Retail investors may see some sideways movement and range-bound trading in the last two weeks of 2024, but may also be subjected to the natural profit taking that generally arises from this time of year,” Moyaha says.
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