Who chooses well: currency exchange or stock market?

Stock prices have been creeping upwards in recent weeks, but in the currency world traders are choosing more positions in safe currencies. While the stock markets are well ahead of the good news, we won't know for a few months who was right.

Will the economic damage still be worth it? There have been several positive messages in recent days. In Europe, for example, retail sales in May were 17,8% higher than in April, Eurostat reported. That increase was greater than the 14% economists were counting on. And according to Statistics Netherlands, inflation in the Netherlands rose from 1,2% in May to 1,6% in June. In theory, it is a favorable development that companies are able to charge higher prices.

But in practice, of course, not everything is what it seems. The higher store turnover was mainly due to a huge jump in clothing sales. In other segments, such as restaurants and hairdressers, there was little sign of a recovery. And Dutch inflation was pushed up by an increase in excise duties on tobacco, which made smoking products almost 20% more expensive.

Happy stock market, cautious currency market
Investors mainly focus on the good news. In the Netherlands, the AEX has made up for more than three quarters of the corona loss, while the American technology exchange Nasdaq has even reached a new record. On the other hand, the currency world seems less confident in a rapid economic recovery.

In recent weeks, currencies seen as safe havens in uncertain financial times are rapidly gaining ground. Good examples are the Swiss franc and the Japanese yen. Against the euro, both currencies reached three-year highs in early May. Admittedly, the euro briefly regained some of its loss. But now the franc and the yen are on the rise again.

Dollar is a special case
The dollar almost always has a permanent place in the list of safe currencies. However, this has not been noticeable in recent months. Part of the explanation is that the recession in the country seems to be getting a lot deeper than in Europe. This is because there are less strong social safety nets, so that a large part of the population feels the impact of the corona crisis more in the wallet.

In addition, the United States is introducing relatively huge stimulus measures. They must eventually be financed. Former Morgan Stanley economist Stephen Roach recently predicted that the currency could fall by 35% as a result of the current policy.

New panic round?
Such a dollar crash is now out of the question. In fact, if the corona nerves race through the financial world again, the most likely scenario is that the US currency will clearly once again play the role of a safe haven. If you look at the corona news and the economic figures, there need not be another panic round. Although the prospects are unfortunately not yet as sunny as the optimism on the stock markets suggests.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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