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Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that for much of this year, the US economy and asset markets appeared impervious to global market upheaval but in recent months, US asset markets, from stock markets to credit spreads, are experiencing negative feedback from fears on the global economy.

Key Quotes

“The US economy may remain robust. However, its big high tech companies are facing headwinds, the US fiscal impulse may be near a peak, negative feedback concerned with its protectionist trade policy may increase, and the fall in oil prices may dampen the now significant US energy sector.”

“Having raised interest rates significantly over the last few years, the USA now has more space to ease policy if the global economy deteriorates and undermines the US economy. This can make the USD more responsive to global economic conditions than other currencies.”

“It may not come to rate cuts in the US in the year ahead, but headwinds may soon pick up enough for the Fed to pause on further rate hikes for an extended period.   This could be enough to turn sentiment for the USD.”

“Although in light of the widening US fiscal and trade deficit a divided Congress and a combative President who is facing the Mueller probe, threatening to shut down government over border wall funding, threatening trade disputes with China and Europe, and openly criticising Fed rates policy – a levelling off in US GDP growth could be enough to turn global investor sentiment against the USD.”