The price of the dollar has shown a sharp drop at the beginning of the week. However, the greenback is subject to new inflation figures in the world’s major economies. Fear of a possible recession, meanwhile, reduces growth expectations.
The price of the dollar -marked by external factors and local pressures in Chile, which is on its way to exit plebiscite of a possible new Constitution – and the fear of a recession in the United States with global repercussions, will again take up the economic agenda this week.
Furthermore, inflation continues to generate uncertainty in global economies.
dollar and copper
The price of the dollar has shown a strong fall at the beginning of the week, after last Friday’s intervention by the Chilean Ministry of Finance, who will go out to sell dollars for US$5 billion over two monthscapped at US$200 million per day.
This measure seeks to generate a weakening of the dollar at the local level after having approached $920, its greatest value in historyamid external and internal factors that supported this rally.
However, the head of trading studies at Capitaria, Ricardo Bustamente, affirms that “this downward effect for the dollar is likely to be short termespecially if we return to the uncertainty due to the global economic weakness, considering that it weakens the currencies of emerging economies and raw materials such as copper”.
Additionally, Bustamante points out that “as we get closer to the Plebiscite for the exit of the new Constitution, which will be voted on September 4, local uncertainty could show an increasea situation that would once again support a higher dollar in the coming weeks if we do not see greater interventions”.
Although this intervention could provoke some additional weakening in the short term, attention should be paid to the other fundamentals of the exchange rate, especially with copper, which has been key in recent times.
The red metal fell 6.96% in its third consecutive week of losses and closed at 16-month lows. Today its price shows a renewed rebound after a start to the week that generated more doubts than certainties.
The concern for a greater economic impact in the short term has been the most relevant factor for its latest falls, they specified from Capitaria. In any case, the prospects for possible monetary stimuli to reactivate the ailing economy have gained strength in recent days, supporting the recovery of a key raw material in the economic cycle.
Inflation data in the US and Europe
the lofty inflation globally, it continues to generate uncertainty in various economies, where the United States reached the highest CPI in just over 40 years, while in the Eurozone there is the highest record since the creation of the bloc of countries.
This week we will know key inflationary data in these two large economies, when on Thursday the inflation data for consumer spending in the world’s main economy is revealed, data that the Fed closely follows and uses for its projections.
“If we continue to see inflation figures that beat expectations in the world’s leading economy, the market will begin to internalize more aggressive rate hikes to control these prices, a situation that could support renewed falls in international equities and a greater strength of the dollar at the international level”Bustamante said.
On Friday the CPI data for the old continent will be revealed, the expert added. Consumer price growth could peak as the region continues to grapple with higher oil and gas prices.
If data is appreciated that continues to exceed projections, we could see a further decline in equities, considering the possibility of higher interest rates in the short term.
Presidents of Central Banks and the G7
The European Central Bank (ECB) will organize a central bank forum in Portugal throughout the week. The highlight of the event will be on Wednesday, when Bank of England (BOE) Governor Bailey, Fed Chairman Powell and ECB President Lagarde will participate in a panel discussion to discuss monetary policy.
The focus will be on comments from global monetary policy leaders, Capitaria said, because comments regarding the aggressiveness and timing of future adjustments and the general direction of major banks’ policies may influence various financial assets, especially at a time when global inflation and recession risks have been at the forefront.
On the other hand, in a sign of unity, the leaders of the nine main world economies met in the Bavarian Alps for a three-day summit that ends today, with the aim of don’t succumb to “fatigue”in the words of British Prime Minister Boris Johnson, by applying economic pressure to Russia for its invasion of Ukraine.
From Capitaria they emphasized that the probability of a recession in the United States skyrocketed this quarter when the Fed aggressively raised interest rates to control rising inflation.
Higher rates discourage borrowing/spending and encourage saving, which should cool consumer demand and prices. They also lower growth expectations for companies, which have plunged stocks into a bear market, they explained.
Also, historically most S&P 500 bear markets have been accompanied by recessions.
Attention is on whether the Fed will be able to cool down the economy without triggering a recession.
Joe Biden said the US economy would not necessarily slip into recession, even if growth slows and inflation remains strong.
Inflation has been rampant in the US, growing 8.6% year-on-year in May, its highest level in 41 years.
Fuel costs are the main driver of rising consumer prices as Western sanctions on Russian energy widen the overall gap between global demand and supply, although the cost of basic food and housing is also rising sharply.
Elon Musk made his latest comments in an exclusive interview with Bloomberg News at the Qatar Economic Forum in Doha, where he said a US recession is “inevitable at some point” and “more likely than not” in the short term.
Wall Street Stocks
The stock market is down almost 20% this yearin one of the biggest falls in history, where technology companies have been the hardest hit.
According to the Wall Street Journal, value stocks are on track to outperform growth stocks by the widest margin in more than two decades.
Finally, after years of struggling to get products on the shelves, big retailers now have too much stuff. Given this, Walmart said that almost a quarter of its inventory is “unwanted”, referring to products to stay at home such as puzzles or “homeoffice”, which arrived months late.