Wall Street rallies as dollar slides
The bulls are in control as stock markets in Europe and the US are showing strong gains. European equities have rebounded from the multi-month lows that were registered yesterday in the wake of the disappointing services and manufacturing reports. Over in the US, stocks have been rebounding this week and today they are building on those gains. In the past few sessions, the US 10-year yield has cooled. Over one week ago, the yield hit 3.48% - its highest mark in 11 years – but since then it has dropped to 3.11%. The sharp fall suggests the bond market is less fearful about aggressive rate hikes from the Fed. As a result of the pullback in yields, equities have soared. Lately there have been fears that company’s profit levels could come under pressure due to rising costs of borrowing, but those fears have been tempered by the comments from James Bullard. The Fed member announced that once disinflation commences, the central bank could look to lower rates. This suggests the Fed might look to do a U-turn on interest rates once they feel the inflation problem has been solved, which is boosting the S&P 500, and is weighing on the US dollar.
EUR/USD and GBP/USD are up on the session thanks to the slide in the greenback. Both currency pairs have been rangebound lately as volatility remains low. Even though the Fed hiked rates by 75 basis points earlier this month, the US dollar has failed to retest the mid-June peak due to mild concerns the economy might be on track for a recession. Worries about an economic downturn are hanging over the UK and Germany too, hence why sterling and the euro have not been up to much.
Gold has been lifted by the weakness in the US dollar. Industrial metals such as silver and copper are now in positive territory following a rebound. Worries about the health of the global economy has put pressure on copper recently – it fell to a 16-month low earlier - but the negative move in the dollar helped the commodity.