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US Close: Rough waters ahead, Strong January Finish for stocks, Dollar weakens

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US stocks finished the month on a nice note, but rough waters still could be ahead over global tightening pressures.  Some of the smart money on Wall Street is still looking to fade every rally as valuations won’t live up to their expectations.   

It seems the Fed will struggle to reach a clear consensus over how aggressive the March liftoff will be, so aggressive ‘buying the dip’ won’t be happening anytime soon.  Economic conditions are still looking good this year but repositioning over valuations and growth concerns will likely keep volatility elevated over the short-term. 

FX

Tightening races should provide interesting currency moves going forward.  Dollar dominance has been mostly priced in as the Fed now seems poised to deliver 5-7 rate hikes this year.  The dollar will likely keep its crown against many emerging markets but could start to see some underperformance against advanced economies that grow more aggressive in tightening.  On Thursday, the Bank of England is expected to raise interest rates to 0.50% and they may follow through on earlier commitments to run down its 895-billion-pound balance sheet. The British pound could rally if the BOE signals they no longer think inflation will improve to its 2% target in 2024.    

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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