SIMON BROWN: I am currently speaking with Matete Tulare, Head of Ethics at RMB. Matete, I appreciate your early morning. We’ve had this chat before about the US dollar index; DXY is its code. It has eased a bit over the past few days, but is largely still trading at the 20-year highs it hit in June 2002.
My question is, what drives it? Whether it is war in Europe, or the energy crisis in Europe, or the fear of a global recession. or just all of them above? Good old fashioned people are scared. They want to put their money where they think is the safest.
MATHET TULARE: Good morning Simon. If you think about it, the dollar started the week on a really positive note. We’re close to a five-week high, and obviously we’re trying to get a foothold from a positioning standpoint and also from a bullish dollar standpoint. I think the Federal Reserve’s hawkish stance ahead of Jackson Hole tomorrow night really contributed to that.
I think the dollar is showing confidence, supported by the high likelihood of continued aggressive monetary tightening by the Federal Reserve and Jerome Powell. If you’ll recall, late last week some members of the Fed announced their willingness to raise rates even further amid concerns about the ever-increasing “I” of inflation and interest rates that we keep talking about.
However, the problem is clearly the strengthening bearishness of the US currency for three weeks now – we have seen the markets reduce their bullish dollar positions, but at the same time many large hedge funds have increased their dollar sales by about 6%.
However, when you think about the skyrocketing inflation in the US, it’s phenomenal [with] large overbought of greenbacks; and obviously the dollar – there is no decline in the dollar index either.
So I think demand for the dollar will continue, and I think ahead of the Jackson Hole meeting tomorrow night, the markets will really pay attention to that protective dollar.
If you have just seen even the Euro/Dollar exchange rate, then we have now broken below parity. So, if anything, the dollar has risen significantly, which clearly demonstrates the dollar’s exchange rate against a basket of currencies in a number of countries.
At the end of last week, it was at a very high level, rising more than 2% in terms of the valuation of a basket of currencies. Also, the current situation in Europe doesn’t even help because if you think about it, the sentiment among many Euro investors is that we have geopolitical tensions, we also have a deteriorating economic situation in Europe, and right now there is bearish sentiment on the Euro. , which has actually peaked over the past two years. In addition, it is now clearly a case of the recession in the Eurozone and the geopolitical tensions that are present [prevailed] over six months and it’s playing out, and it looks like it could go on. And it seems that global growth will not be sustainable. Obviously the numbers will have to be revised at some point and it won’t look as good as we expected.
And that just means a rush to the safe haven, which means a rush to the dollar.
SIMON BROWN: That’s all. If there is fear, everything goes to the dollar, checking that EUR/USD: 0.9990 is the current bet for this. And of course the rand is holding up a bit, but still weak. Matete Tulare, Head of FX Execution at RMB, we’ll leave it there.
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