■ Dollar weakens 2.5% weekly vs. EUR on U.S. political instability
■ Flight to safety sends S&P 500 to 0.4% weekly decline
■ VIX ascends to highest since U.S. elections, at 16.30
■ Investors seeking safer havens send Bitcoin flirting with USD 2,000 level
■ Oil climbs to UDS 50.53 as Russia & Saudi Arabia seek to extend output cut collaborations
Dollar investors suffered quite a selloff last week. The U.S. currency weakened by 2.5% vs. the Euro Monday to Friday – the largest weekly decline for the Dollar vs. the Euro since February of last year. USD/JPY, similarly, was down 1.9% for the week. The Dollar’s weakness followed accusations that President Trump is seeking to suppress an investigation by the Fed on Russian involvement in his campaign. U.S. political pressure, duly noted, was already high following last week’s news, that President Trump fired FBI Director James Comey.
The flight-to-safety, or rather away from the U.S. saw the S&P 500 recording a 0.4% weekly decline, in spite of starting the week on the right foot. While signs of recovery could be found towards the weekend, markets ended the week with substantial selling pressure amid news that Comey will testify before the Senate intelligence committee, shedding new info on his firing. The negative mood also triggered a surge at the CBOE VIX index, leading it to a level of 16.30 – its highest since the U.S. elections, in November of last year.
The EUR’s strengthening also weighed on stocks in the Eurozone, with a 1% weekly decline recorded at the DAX and -1.5% for the CAC 40.
Investors seek safer havens
U.S. sovereign bonds gained not only from investors seeking safer havens, but also from the speculation that Trump’s administration would have a harder time passing some of its reforms. This, in turn, meant an unwinding of the “Trump Trade”, which means lowered expectations for a tightening of the Fed’s policy. Wednesday saw a substantial decline at the possibility priced into bond markets, that the Fed would hike rates on its next rate decision, on June 14th, with those edging close to 80% vs. the near certainty priced into the markets prior. Market derived expectations for June have reversed towards the weekend, though some uncertainty was provided on Friday, after St. Louis Fed president Bullard said that the Fed’s projected path for raising rates could be “overly aggressive.”