An Eye on Euro
Macro Perspectives: Mon 07 Mar 22
Despite all of the speculation about the dollar losing status as the world reserve currency...gold losing ground as the safe-haven...and Treasuries being penalised for reckless deficit spending, where does global capital flow when things really get dicey?
We ended the week with a Flight to safety.
With two valuation drivers at work (inflation and geopolitical risk) gold is back near $2,000, tracking toward the record highs set August of 2020.
Whilst gold typically rises, as the dollar falls, in times of global stress, they rise together. Here's a look at the dollar...
And the dollar chart above is mostly driven by this chart below (a slide in the value of the euro)...
This is a key spot to watch (the euro)...where we may see some surprises bubble up in markets.
The 2013-2014 Russia/Ukraine conflict resulted in a sharp slide in the euro, involving sovereign debt risks and (related) exposure of European banks to Russia. This time, Fitch calls the bank risks limited (if not small). There however are typically secondary risks in these environments that can bite - like a hedge fund counterparty default, which could create a shock event for the financial system.
Keep an eye on the euro.