The Current State of the Markets
There is never a dull moment in the investment arena, and this week is shaping up to be laden with opportunities to embrace and risks to avoid. On a macroeconomic level, the US dollar has turned the corner and is now showing plenty of bullish sentiment vis-Ã -vis the US Dollar Index. The dollar spot index was last trading at 95.334 as at Friday, 20 May 2016, and that represents a 0.05% uptick, or +0.047. While the year to date return for the US dollar index remains negative at -3.34%, this is the highest level for the index in over a month. This has far-reaching implications for dollar-denominated commodities like gold, crude oil, copper, iron ore and the like. As the USD appreciates, so demand for dollar-denominated commodities naturally decreases.
Equally important is the impact of a strong dollar on the ability of US companies to export overseas. If US goods are relatively more expensive, less of them will be demanded and this ultimately hurts the trade balance. Analysts at the Fed will be closely eyeing the USD, and the economy for signs of an improvement. Important economic data was released for existing home sales in April, which indicates the second successive month of increases for an adjusted yearly rate of 5.45 million. The Fed will also be taking this into account when determining whether to raise interest rates midway through June 2016.
In other news, the GBP has appreciated sharply against a basket of currencies, in the run-up to the Brexit referendum on 23 June 2016. Opinion polls now show the ‘stay campaign’ opening a wide lead over the ‘Brexiteers’. This has allowed the GBP to appreciate relative to other currencies, and this is evident in the bullish sentiment among currency traders. The prospect of a Brexit is not one that is welcomed by euro zone countries, notably the G7 which came out with a unified statement against a Brexit. Prime Minister David Cameron, Chancellor of the Exchequer George Osborne, head of the IMF Christine Lagarde, and other leading stay campaigners have been burning the candle at both ends to caution Britons about the impact of a Brexit on their personal fortunes, the housing sector, the GBP, et al.
