Credit Agricole CIB Research argues USD could emerge as the winner of the latest market stagflation scare.
"For all the soothing words of global central bankers, investors could continue to worry that a more persistent inflation overshoot in the coming months could force central banks around the world to reconsider their ultra-dovish policy stance, despite recent evidence that the global recovery peaked in Q2 and seems to be slowing down. The resulting unwarranted tightening of global financial conditions (eg, strong USD and higher UST yields) could threaten the global risk rally," CACIB notes.
"This week’s CPI and retail sales data out of the US could underpin the above concerns if the releases point to unabated price pressures that are accompanied by slowing recovery of domestic demand and employment. We think that the high-yielding, safe-haven USD could remain resilient in this environment (consistent with the ‘USD smile’ analytical framework)," CACIB adds.