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The global market has been spooked by recent developments in the US where rising wage pressure at a time of low unemployment and tax cuts is raising concern. The S&P 500 entered into correction territory after falling 10%  from its January 26 high, and with bonds also falling, commodities suffered another week of sharp losses.

Renewed risk appetite has been led by the recovery in global stocks which posted their best week of gains in six years. The dollar hitting its lowest level since 2014, together with a rising inflation focus, supported a strong week for commodities with funds continuing to have an appetite for broad-based commodities funds. Gains were seen across all sectors with industrial metals on top ahead of the Chinese Lunar New Year holiday.

Currencies

Dollar loses confidence of investors

Not so long ago a rise in US bond yields, over and above those of international rivals, was enough to draw a steady bid for the Dollar from the foreign exchange market. That has changed over the last four months, to the consternation of many, with US two year bonds now offering their highest yield premium relative to their German rivals than at any other time in recent history while the Dollar continues to fall. While US authorities may pay lip-service to a stronger dollar, America First equates to a weak dollar policy. Moreover, concerns over the likely increase in US government debt that would be required to finance this spending over the coming decades may explain the rest of the greenback’s weakness. We expect EUR/USD bullishness to continue.

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