China sends a shockwave through the markets, Fed may pick it up for a nice surf

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The us dollar has been quite a bit stronger against the euro, due to the uncertainty with regard to the problems in China’s real estate industry, which pushes investors to flee to safe havens, the dollar, the Japanese yen.

The reason for this is the financial problems of the large Chinese real estate company Evergrande, which is shifting to the valuations of other real estate in Asia and the wider stock markets.

There are now comments that it could be a ‘Lehman moment’ and there is some contamination to other companies but it is so vague what is happening in China that it is not good for analysts to find out exactly what is going on there.

The risk of the fund’s financial problems leading to a domino effect in any case creates a general risk-off sentiment on the foreign exchange market, with the well-known currencies-the US dollar, the Japanese yen and the Swiss franc becoming more valuable as safe havens against the euro.

On the other hand, pro-cyclical currencies such as the Norwegian krone and the Australian dollar, which benefited from the demand for raw materials and the economic good news.

The dollar can strengthen even further to a rate of $ 1.16 for a euro, due to the uncertainty, in combination with an expected announcement of a reduction of the buy-back program by the Federal Reserve at its upcoming interest rate decision on Wednesday evening. This could lead to the start of the phasing-out of the incentive in November. We expect feds to declare that more and more conditions for taping have been met. It should amount to the ‘warning’ the Fed has promised to give.

This will be done with the necessary ‘ifs’ and ‘buts’, as the uncertainty on the financial markets is increasing. This is due not only to China but also to higher natural gas prices, which can lead to higher inflation rates and also affect the purchasing power of many Americans.

About the author

Nicholas de Kramer

Nicholas de Krammer, а self-taught economic analytic with heave mathematical background. Math behind the economics (and economics behind math) is the strong side of the author. Contact him at [email protected]

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