Global economic growth optimism is fading rapidly, with major central banks vying to announce a “material” deterioration in real output forecasts and rising risks of stagflation. On Tuesday, the Bank of England made a worrying revelation with its Financial Stability Report, which said that economic outlook for the UK and globally had deteriorated markedly and that UK banks would need to double their counter-cyclical capital buffer to 2%. The requirement to increase the margin of safety for the banking sector means that the Central Bank expects an increase in credit risks in the economy.In a similar statement to the British Central Bank about the economic outlook, ECB centrist De Guindos made a statement on Monday. In the coming months, according to the official, the EU economy is likely to face shocks that will reduce growth and push inflation upward. The balance of risks for inflation in the Eurozone is shifted towards further acceleration.Powell said in his last speech last week that the US economy is in good shape. The continuing contrast of statements suggests that the margin of safety of the US economy before policy normalization may be higher than that of the developed world peers, so the consensus on where to best ride out the coming storm is rapidly leaning in favor of the cash dollar. On Tuesday, the index of the US currency grew by more than one percent, primarily due to the strong weakening of the Euro and GBP:EURUSD broke through the previous low of this year 1.0380 within two hours and went below 1.03. The nature of the movement suggests that the market took into account an important piece of information. GBPUSD fell below the key support level of 1.20, given the technical picture (bounce after the first break in June, consolidation, and then a retest), a breakdown of 1.19 is next in line.Bank Nomura, in its latest report, announced the risk of the euro falling to parity against the dollar. In August, according to the bank’s analysts, EURUSD may drop to 0.95.Inflation reports for Asia’s three key economies – South Korea, Thailand and the Philippines – showed that inflation accelerated faster than expected in all three countries, thus reinforcing fears of an impending period of stagflation in the world.Yields on long-term bonds in the US, Germany and the UK again turned into decline, indicating increased anxiety in the market.
Source: Tickmill
