By Kiyimba Bruno
Few days after Donald Trump was elected president of the United States of America, the world is experiencing high risks of bigger budgets and Inflation.
In many markets including East Africa, local currencies have been falling rapidly.
The dollar has gained against the Uganda shilling at unprecedented levels.
On Tuesday morning according to Bank of Uganda, the dollar opened at 5,548 and closed at 3,570.58.
According to Mark Johns of the Reuters, currencies in many emerging markets – from the Mexican peso to the Malaysian ringgit – fell to new lows and for share markets it made for a mixed start to the week.
According to the European Union, the European index had lost much of its early buoyancy by the time U.S. trading neared but was still up 0.2 % since the banks witnessed a heavy boost from higher interest rates and mining company shares came up since Trump promised a major infrastructure spending.
The USD has meanwhile moved towards 108 yen JPY=, and then dropped back from the eye-catching 100 threshold on the .DXY index that measures it against the world’s other major currencies. [FRX.
“Clearly the market has settled on a ‘buy dollar’ theme on the basis there will be a debt-fueled U.S. fiscal binge that will push up inflation,” TD Securities European Head of Currency Strategy Ned Rumpeltin said.
“People are repricing the Fed on the basis of that so it all seems to be a relatively straightforward.”
Yields on the U.S. 10-year Treasury notes climbed to their highest since January on Monday at 2.28 percent US10YT=RR, while 30-year paper reached 3 percent. German 30-year yields topped 1 percent for the first time in more than six months. [GVD/EUR]
Merril Lynch from the Bank of America says that Only two days of selling last week produced more than $1 trillion across global bond markets, the worst rout in nearly a year and a half.
The jump in yields on safe-haven U.S. debt threatened to suck funds out of emerging markets, while the risk of a trade war between the United States and China is also causing jitters.
“There are signs that higher bond yields and the knock of a stronger U.S. dollar are having a domino impact, taking down the weakest risky assets first, before moving on to the next,” Deutsche’s global co-head of forex, Alan Ruskin, said.
“There is only so much financial conditions tightening that risky assets can take when fiscal stimulus is still a promise that lies some way in the future.”
The stampede from bonds has seen 30-year yields post their biggest weekly increase since January 2009 and the 50-basis-point move in 10-year bonds is the equivalent of two standard interest rate hikes.