News & Analysis

Grappling with the stagflationary backdrop

Oct 04, 2021

Grappling with the stagflationary backdrop

The dollar grabbed all of the attention this week as markets turned decisively risk-off, despite a minor retracement towards the end of the week. Concerns over slowing growth, rising inflation, climbing energy prices, US debt default and systemic risk from China all weighed on risk sentiment and sent the dollar DXY index above its 2021 range to touch a fresh 1-year high before retracing at the margin. With this environment set to persist for the next few weeks at a minimum, the reaction by central banks and policymakers will receive heightened focus. Next week, the RBA, RBNZ and NBP will have to announce their policy decisions given the latest downturn in the global economic outlook, while on the data front, US and Canadian labour market data stands out. The central banks’ assessments of the stagflationary environment will be in focus for markets, especially as traders adjust positions following this week’s aggressive price adjustments.

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Authors:
Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst

 

 

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