Former Goldman Sachs executive and macroeconomic expert Raoul Pal believes if the dollar continues its rally, it could worsen the outlook for a lot of assets including oil and emerging market equities.
What Happened: “If the dollar keeps going, it’s going to really break things. It has literally done parabolic...,” Pal tweeted while pointing towards a steep dollar index chart.
Pal, the CEO and co-founder of Real Vision Group, said that the deviation from the trend suggested the dollar index could get to 120 levels as well. The dollar index is a gauge that measures the strength of the greenback against a basket of currencies.
Risky Assets: Pal also pointed out that the continuing greenback rally could impact risky assets. “I don’t think equities make new lows but I'm not sure of that. Same with crypto ... I think we get saved by weak economic data this week.”
Why It Matters: Emerging market equities witnessed a sharp decline on Monday following U.S. Federal Reserve Chair Jerome Powell’s indication that higher rates could persist for some time.
Investors and traders will be watching out for the jobless claims set to be released later this week.
A strong job market is a factor that the Fed could consider before deciding on its future rate hike course. If economic data comes in weak, investors could consider that the Fed may tone down its hawkishness as far as future rate hikes are concerned.
Pal also believes the bond market is the most over-valued versus the business cycle ever. “If the bond market turns, everything eventually turns,” Pal tweeted.
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