Investor caution remains heightened amid geopolitical tensions, uncertainties on global stock markets and a edged rise in gold prices, which rose by more than $100 to $4,865. While the U.S. dollar (USD) is only slightly stronger, concerns about Fed autonomy, persistent inflation and rising yields could see exposure to U.S. assets further reduce in the coming months, according to Scotiabank chief currency strategists Shaun Osborne and Eric Theoret.
Fed independence in focus amid rising market risks
“There is clearly still a greater sense of unease among investors, who remain concerned about Trump’s ambitions in Greenland and their potential consequences. The major non-core currencies that underperformed yesterday improved to the top of the overnight currency leaderboard, while the major major currencies – yesterday’s leaders – fell. The CHF was the weakest among the major currencies on the day, while the KRW, ZAR and MXN are the leaders. Global stock markets are unsettled – mixed in Asia and lower in Europe, while US futures are stronger. Bonds are also mixed, but Japanese government bonds rebounded after yesterday’s big losses.
“An indication that investor concerns remain heightened is that gold has risen more than $100 to $4,865. DXY remains slightly higher overall, but the index is not mighty and investors clearly remain cautious on the outlook; technical indicators remain bearish. While one compact Danish fund manager has announced its exit from the US Treasuries market, we believe the risk of mass weaponization of US assets by European investors amid rising tensions with Washington is low.”
“But there are many other risk factors – the president’s decision to replace Fed Chairman Powell, persistent inflation and rising bond yields, and calendar risks facing elevated U.S. equity markets this half of the year – that could still prompt investors to limit exposure to USD and/or U.S. assets in the coming weeks and months. SCOTUS will hear arguments on the legality of President Trump’s push to fire Fed Governor Cook for cause today. This case could enhance investor concerns about the Fed’s operational autonomy.”
