Inflation, economic uncertainty, and high-interest rates have definitely affected the market last June. From Forex to Commodities to Cryptocurrencies, here are June's most shifted market instruments.
Dollar Strengthens on Fed’s Interest Rates
In an attempt to fight surging inflation, central banks like the ECB and the Fed Reserve had to raise interest rates. Accordingly, the US Fed Reserve hiked interest rates to the highest level since 1994 as they increased rates by 0.75% the biggest rise since the Raegan administration. This, in turn, pushed the US dollar to a two-decade high against major currencies. The Japanese yen, for example, dropped to its lowest level since October 1998 against the US dollar on June 21st. This is because interest rates and national currencies have a correlative relationship since as interest rates rise, a country’s national currency tends to climb with it. Moreover, higher interest rates attract foreign investors and increase the attractiveness and demand for the home country's currency. Consequently, the US Dollar Index (DX), which measures the US dollar against the world’s most-traded currencies, rose by 3.5% on June 14th.
Commodities Struggle to Keep Pace
Whereas inflation was definitely kind to the US dollar, it was not as merciful towards other market sectors. The growth of some key Commodities was irrefutably stunted by inflation and the overarching economic uncertainty and turmoil. One of the major market commodities, Natural Gas (NG) sank by 37% on the 14th of June. The reason behind its fall surpasses inflationary pressures. On the 14th of June, an explosion erupted at Freeport LNG facility, the second-largest US natural gas export facility. This devastating incident led to Freeport LNG halting some of its operations until, what to them, seems to be the end of 2022. According to some market watchers, this incident means that the US natural gas market is going to be oversupplied for a while as about 2% of the demand for US natural gas has been eliminated.
Another commodity to have been hit last June was Copper (HG) which slumped due to the looming economic uncertainty exacerbated by a resurgence of COVID cases in China as well as the monetary tightenings in Western countries trying to combat inflation. This is because Inflation gushes bring with them higher interest rates and decrease the demand for metals. In addition, China’s intolerance towards COVID which is ostensible in its Zero-COVID policy led to a renewal in COVID restrictions at the end of May and earlier June which generated market jitters regarding the fate of Copper. As a result, investors and market watchers may have been worried about the prospect of the country not recovering from the economic pressures of Coronavirus restrictions and inflation. Hence, demand for Copper and investing in it shrank and its value descended by 15% by the end of the month.
Crypto Takes Down Coinbase
The Cryptocurrency market was deteriorating long before June, and what some call the “Crypto winter” was already happening in May, a month before the Crypto selloff in June. According to the Bank of America, in May, the number of crypto users diminished by half and they attribute this deterioration to a negative market sentiment towards the digital currency market. This was due to the fact that Stablecoin TerraUSD plummeted in response to the central bank’s monetary tightening. The damages in the Cryptocurrency sector also extended to June and the biggest Cryptocurrencies, Bitcoin and Ethereum suffered as well. Ethereum dropped below $1000 and Bitcoin lost a whopping 70% from its all-time highs in November by slumping below $20000 on June 18th.
The casualties also penetrated Coinbase’s (COIN) realm, the largest cryptocurrency exchange platform in the US. As investors tend to shy away from riskier assets like Cryptocurrencies and sought an inflationary retreat from safe-haven assets. Evidently, this premier crypto exchange lost 31% of its value over the course of the month of June.
Will July Be Any Different?
As for this month, the fact that the market is still suffering from the consequences of the ongoing war and a spike in COVID infections and restrictions in some parts of the world only makes the future of the market seem blurrier and some analysts posit that the losses might accompany us in the second quarter as well. However, the market is known for its volatility so what really will happen is yet to be seen.