The harder the landing, the more volatile and dangerous the Dollar’s turn will be – SocGen

Dollar bulls are feeling the squeeze. Kit Juckes, Chief Global FX Strategist at Société Générale, notes that Dollar bulls are in retreat if hard landing fears are kept at bay.  

Dollar sentiment is turning

“While there are still some nasty tail risks out there, we are in the process of seeing inflation peak, and while growth is slowing and, in many cases, recession is likely, this will be a common or garden economic downturn, with mild recession already priced into credit spreads and currency levels.”

“Fed rate hikes are priced in, the high has been for bond yields; the Chinese authorities will support the housing sector and slowly reopen the economy; emerging markets are turning a corner and offer attractive entry levels in currencies and bonds. And so on…”  

“As the narrative shifts, growth data become even more important. We won’t see inflation make a nice tidy peak and just fall back, but forward-looking measure are likely to be supportive for a while.” 

“With the Dollar so highly priced, the big question will be whether what happens next is a softish landing for the global economy, or a harder one. The harder the landing, the more volatile and dangerous the Dollar’s turn will be, but a soft landing is a Goldilocks market scenario where credit, emerging markets, and growth-sensitive currencies can do well.”