Some stabilisation in risk sentiment after Monday's equity sell-off could help high-beta currencies recover some ground. The dollar might feel some pressure, although buy-the-dip interest may emerge given the backdrop of Fed tightening, growth concerns and an unstable risk environment, economists at ING report.
Beware of short-lived rallies
“Global equity futures are pointing to a tentative rebound in global risk assets today after a major sell-off yesterday triggered by fears of an economic slowdown at a time when central banks are tightening policy. It is not surprising to see the dollar remain strong in such an environment, retaining its safe-haven attractiveness whilst still benefiting to a certain degree from the Fed’s front-loaded tightening story.”
“A risk-on rebound may be on the cards after yesterday’s slump, and commodity currencies may recover some ground, to the detriment of the dollar.”
“Given the general instability in the global risk environment, some interest in buying the dip in the dollar should remain high and we do not expect any sustained USD underperformance in the near term.”
