Another round of weak data in Asia, more specifically the latest set of PMIs in China have once again alerted investors over the pessimistic news that 2019 will be a challenging year for the global economy. Weaker data releases are not only idiosyncratic to China, but also throughout Europe and a number of different emerging markets.
All in all the pessimism over the slowdown in global growth story is promoting another round of risk-off in financial markets. This means weaker momentum for world stocks, while safe-haven assets like Gold and the Japanese Yen are in demand.
The Japanese Yen is the clear winner in this environment, and it is seen significantly stronger against a number of its counterparts. The USDJPY has dropped all the way from 113 to 108 in around two weeks, whereas the Yen has also gained above a whopping 3% against the Norwegian Krone, New Zealand Dollar, Canadian Dollar and Australian Dollar since December 17.
Source: Bloomberg Terminal
Can the Greenback bounce back?
One currency I would keep an eye on over the next couple of days is the US Dollar. The market is very negative on the Greenback heading into 2019, but I don’t think the current valuations reflect that if there is a global economic slowdown this year, that the United States economy will still on headline perform far better than the majority of its developed peers.
The Australian Dollar, British Pound, and Euro belong to the three economies in the developed world that are the most sensitive to global economic woes and these currencies would represent the most developed economies out of the G-10 to suffer weakness if the risk-off mood continues.
2019 should by all accounts be the year that the Dollar declines given the reversal in Fed rate hike expectations that is ongoing, but this is something that would likely occur towards the end of Q1 and not right at the beginning.
Therefore, I would keep an eye out in case a short squeeze in the Dollar means that the Greenback advances against several of its G-10 peers, with exception of the Yen that will storm ahead as a result of the ongoing market uncertainty.