Higher market risk. Strengthening dollar, yen, and Swiss franc

While there's nothing particularly exciting happening in the market, there's a hint of risk in the air. Wall Street futures are experiencing their biggest correction in several days, leading to significant declines in Asia and Europe. The US dollar is at its strongest level in a long time, demonstrating its return to safe haven status, even during the record-breaking government shutdown. Do we really have anything to fear?

In recent weeks, financial markets have been experiencing a sense of continuous growth, not only on the stock market, but also on the bullion market. Corporate results were quite good, the worst-case scenario of another trade war escalation was avoided, and interest rates fell againOn the other hand, Powell announced that December is not a certain date when interest rates might fall again. This view is supported by subsequent statements from Fed members such as Goolsbee, Cook, and even Daly, although opinions regarding the key risk are clearly divided. Some point to an excessively high risk of inflation, which could emerge with the reopening of the government, while others point to a significant slowdown in the labor market, which is exacerbated by the US government shutdown.

Will greater risk trigger profit taking?

In this whole market risk puzzle, we are observing a clear strengthening of the yen and also the Swiss franc, but without a recovery in the gold market. Gold remains close to $4000 an ounce, but the risk of a prolonged correction remains. China has decided to end its tax break on gold purchases. Until now, buyers could deduct VAT on purchases, but after November 1, this is reserved only for members of the Shanghai Gold Exchange and the Shanghai Futures Exchange.While these changes are aimed at standardizing the market and limiting arbitrage, they could potentially lead to a decline in demand in the last two months of the year.

While current movements in the stock, currency, and commodity markets are still corrections, the lack of positive news from the global economy or monetary policy could lead to profit-taking among many investors worldwide. If even greater concerns about a bubble were to arise, AI or international trade, the end of this year could be very turbulent.

Currently, we are observing a very strong dollar on the currency market and only the yen is gaining against the most important currency in the world, which is related to the hawkish comments of Katayama, the Minister of Finance of Japan. For a while, we also observed a slight strengthening of the Swiss franc, whose strength is a serious problem for the Swiss economy.We're seeing quite a significant weakening in the British pound ahead of the budget announcement and Thursday's Bank of England interest rate decision.

Before 10:00 a.m., the dollar in Poland cost PLN 3,6968, the euro PLN 4,2573, the franc PLN 4,5749, and the pound PLN 4,8417.

Source: Michał Stajniak, CFA, XTB