Pound, oil crashes as US Dollar surges to record high
The final week of September is proving to be disastrous for oil and the British pound. Oil prices crashed and the GBP was pummeled to record lows on the back of a surging US Dollar.
While a surging dollar might be good for Forex traders, many analysts still believe a recession is on the horizon for the USA. Today, we look at the state of global forex trading, and currency issues and reveal what’s in store for traders in the weeks ahead.
The Pound collapsed to a record low of $1.0327 on September 26. It recovered to $1.0772 by Sep 27. The Euro was up 0.3% at $0.9636 despite hitting a 20-year low on Sep 26.
The US dollar index on Tuesday eased by 0.2% to 113.71; the benchmark currency index reached 114.58 on Sep 26, its highest since May 2002. In markets, the S&P 500 futures rose 0.7%, while European futures were up 0.6%.
The British government is facing a host of issues; Brexit continues to hurt its trade and industry, a new Government has taken office, and a looming energy crisis. The new UK Government is planning tax cuts on top of energy subsidies. Unfortunately, a lack of confidence in the strategy is hammering the pound.
After the pound’s crash, the Bank of England said it would not change interest rates though is monitoring markets “very closely”.
Analysts are concerned by a poor outlook for the months ahead. European markets already hard hit by high-interest rates now have to contend with volatility in the British markets set to spill over into the rest of the continent.
Bear market despite Dollars surge
Wall Street dropped into a bear market; benchmark 10-year Treasury yields rose more than 20 bps to a 12-year high of 3.933%. Many experts are predicting a recession in the USA.
Just how likely is a recession? The VIX, known as the US market’s “fear gauge”, hit a three-month high of 32.88 on September 27. Bad news for long-term investors but good news for traders as the near-term volatility will present many trading opportunities. Investors are waiting for the outcome of central bank officials set to meet on Sep 27. Market expectations are for a small lift to 104.5 from 103.2 in US consumer confidence.
Asia markets rattled
Asian markets were attempting to recover as the USD’s surged slightly and stocks were left flat. The ASCI, the biggest index of Asian shares, dropped 0.3%, the smallest fall in five straight sessions of losses, even though it was a two-year low.
Japan’s Nikkei index up 0.5%.
Oil crashes below $90
Oil prices rose more than 1% on Tuesday, after crashing to nine-month lows on September 27. The rise came from news that the oil-producing alliance, OPEC+, could introduce output cuts to avoid major price drops.
Brent crude was up 1.39%, to $85.23 per barrel while US West Texas Intermediate (WTI) crude was up $1.13 to $77.84. This marks a huge drop as both oil futures were teasing $90 previously and in stark contrast to more than $120pb last seen in February 2022.
In the previous two trading sessions, Brent crashed 7.1% while WTI declined 8.1%. The reason for the crash? The dual pressure of a surging dollar makes purchasing oil incredibly expensive and mounting concerns rising interest rates will trigger a recession. A recession will spell disaster for the oil industry as it will curb demand globally.
Gold in recovery
Meanwhile Gold continues to struggle beyond $1600. Back in 2020, gold, teasing $2000 was seen as the perfect haven as the world was plunged into chaos. In 2022, it continued to crash to record lows. Gold is clinging to hits minor gains above $1,630. The benchmark 10-year US Treasury bond yield is down more than 2% which is assisting XAU/USD in its bullish momentum. It is predicted that should the US head into recession, many traders will turn to gold once again.
Could the US head into recession?
Globally, central banks and governments are suggesting currencies need to stabilise to avoid disaster.
The US economy could be headed into a recession. High-interest rates, high inflation, and the rising cost of goods are all pointing to a major market depression by the end of 2022. The US government is spending huge amounts of currency and the Fed is being forced to aggressively hike interest rates. This disastrous combination could lead to economic disaster.
South African Rand sees a minor rally
The South African Rand saw a minor rally, as the US dollar’s surge dipped slightly. The rand traded at R17.95 against the dollar, this from a record low of R18 to the dollar. Economists believe Rand’s value against the dollar will likely remain volatile as the South African economy is battered by high inflation and energy woes.
South Africa is suffering the scourge of poor power delivery by state-owned power supplier Eskom. The lack of a consistent energy supply is curbing any form of economic growth and hurting investment in the African country.
News from the cryptoverse
In other currency news, Bitcoin managed to rise above $20,000 on September 27, the first time in about a week Cryptocurrencies are experiencing a resurgence as many traders look toward more risk-sensitive assets.
Bitcoin, the world’s biggest cryptocurrency, is up more than 5% at $20,286. Ethereum, the second-biggest crypto, rose 4% to a one-week high of $1,389.
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