The dollar is reigning supreme under current conditions
Source: www.tradingview.com
The greenback is the market's safe haven in the current macroeconomic environment. Many variables are in play, and their complexities drive a risk-off sentiment as the narrative oscillates between inflation and recession. Market participants are confused and, as such, have decided that cash is king. The USDOLLAR's stochastic has pushed into its upper quintile (green rectangle), and as long as it maintains, the buck will stay bid. This bullishness persists even though, on a longer-term basis, the USDOLLAR is looking top-heavy – the market is more comfortable with the devil they know.
The uncertainties stem from stagflationary pressures from exogenous supply shocks due to the Russian invasion of Ukraine, lockdown conditions in China (and the threat of renewed lockdown) and supply chain disruptions. Add to this the rampant demand-side inflation from unconventional and ultra-loose policies, and one finds that there are few places to hide as markets reel. As a result, the majors have tanked against the dollar today as risk markets sell off. However, the complexities continue as monetary authorities tighten and participants ponders the potential fallout from another round of unconventional policy – quantitative tightening.
The market expects the Fed to deliver another 75bps hike this month and currently expects 50bps in September. Given the cumulative addition of 125bps, it is highly likely that the 2/10s yield curve inverts (black rectangle, lower chart). Whilst not guaranteeing a recession, all recessions begin with a yield curve inversion. In effect, the market is suggesting a slow down and lower interest rates in the future to compensate.
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
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