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Dollar bounced! Investor are keeping eyes on inflation risk - ZFX Daily

Dollar bounced! Investor are keeping eyes on inflation risk

17-02-2021 10:43

Stocks in Asia-Pacific were mixed on Wednesday as the market sentiment turns to be a bit cautious, following the moves stateside overnight. The Wall Street was mixed on Tuesday, of which the Dow edged 0.2% higher to a record close. However, the S&P 500 and the Nasdaq closed a bit lower, as the investors monitored the jump of the US bond yields.

The benchmark 10-year Treasury yield jumped to 1.32%, which is the highest level since Feb 2020. ZFX analyst Jacob Leung said that, it may be a “dangerous” signal. As the market is now believing a “true” global recovery, inflation risk would be a key concern among investors under such easing economic environment. And, if the inflation is back, it will limit the flexibility of Fed policy, and that’s why the dollar is bouncing back.

The dollar index is approaching 91 area on Wednesday as traders are betting “no more” massive stimulus from Fed. In the meantime, a possible acceleration in inflation pushes Bitcoin to $50,000 level for the first time. ZFX analyst Jacob Leung said that there is no doubt that now investors may consider cryptocurrencies are the better tools for hedging inflation rather than gold. Gold price dropped to $1790 level as the bond yields jumped.

The overall European stock markets were in red in early trading session. Global investors are still closely watching the latest moves in the Treasury yields after digesting all the market news and analysis. Analysts believe that the positive expectations in the market would drive “money” into the equities from the low-rate bonds. However, some are on the other hand struggling that the higher yields could prompt investors back to the bond markets, sparking selloff pressure of stocks.

ZFX analyst Jacob Leung said that, as mentioned before, traders expected “more” from Fed. If Fed cannot be too aggressive in QE, it may boost risk-aversion together with a stronger dollar. In addition, in the coronavirus front, another new variant would be a potential “bearish” to the whole market.


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