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.
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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