The Fed’s Dovish Pivot: What It Means for the Dollar and Equity Markets

Well, it is finally Friday.

The equity average is flashing back and forth between red and green all week on trade tensions, worries about bad loans from regional banks, all while earnings rolled out from the big banks.

Now big banks earnings were digested, but some bank stocks got rocked in the previous session.

Investors pulling back as fresh fears about regional lenders sparked a broad sell off.

Joining me as we head into the weekend is Eli Saad, global head of market strategy at BBH.

Great to have you here.

Thank you so much for joining me.

Thank you very much for having me on your show.

Well, it's great to have you here at the New York Stock Exchange in person, but it's been quite the volatile week, and this comes after that Friday sell off we saw not just in the equity markets, but across all asset classes.

But one thing stands out, and that is that record level we continue to see in gold.

So what do you make of the latest jitters?

I mean, to me, I look at the credit worries right now in the market and what happened with those regional banks.

It looks to me more as a due diligence issue rather than a systemic wide problem.

But I don't want to be complacent about it.

You know, clearly the market is frothy.

Stock markets and stocks are expensive, corporate bonds are expensive.

Um, so we're due to have a nice little correction here.

But I think the upshot of all this is that it could potentially lead to a more dovish Fed.

Already the labor market is fragile, and if you add on top of that concern about corporate profit corporate profitability because of you know higher higher tariffs, well, you could see the Fed perhaps pivot a bit more dovish by the December.

Meeting and I think that could trigger your next your next down leg in the US dollar, but also paradoxically it could lead to a further melt up in equity markets.

So yes, it's concerning what we're seeing on the credit market right now, but it could potentially force the Fed to turn more dovish, which could naturally lead to a more bigger rally in equity markets.

So yeah, you bring up a lot of key points there because there are a lot of moving parts here when we talk about the bigger picture and it's interesting because earlier this week Jamie Dimon made that comment about if you see one cockroach, there's probably more.

So this is an area especially with regional banks that we'll keep our eyes on.

But of course the Federal Reserve, they're meeting a rate decision at the end of the month.

We finally get that CPI.

Figure next Friday.

So that is something that we will all be watching closely.

But what do you make of some of these trade tensions?

Is that something that you are monitoring closely and how?

I mean, it's difficult to, it's difficult to trade on those on those tensions.

It just adds so much volatility.

I mean, to me, the bigger, the bigger picture, and this is what I look at, is that when you look at when you have protectionist trade policies as the US does, I think this is a downside risk to growth and upside risk to inflation.

Um, and so that's naturally that's not very good for the US dollar.

It's not a good combination for the US dollar, this taxflation concern.

And also, you know, if your ultimate goal is to narrow the trade deficit, that also means you have less dollar going overseas and less of those dollars being recycled back into US stocks or US treasury.

So that's also a negative for the US dollar.

So to me those protectionist trade policies regardless of the tariff noise over the cyclical and structural terms, that's a negative for the US.

Elias, you are looking at overall policy not just in the US but also globally as well and you mentioned the US currency.

So one thing that we've been paying close attention to is gold.

We've seen it not only break above 4000 but 4100, 4200, and in New York morning trade, we are looking at a hold above that 4300 level.

So where do we go from here?

I love gold.

I mean it's God.

Currency really, you know, I think gold benefits from the fact that you've got real interest rates that have come down as central banks are easing while inflation is relatively still sticky, so that reduces the opportunity cost of holding non yielding assets like those.

So gold benefits from that.

Gold benefits from fiscal worries, right?

We've got fear of debt monetization and a lack of confidence.

Or fiat currency gold benefits from that.

But more importantly right now, a key driver is central banks diversification.

They're not diversification.

They're not divers diversificating away from the dollar into the euro, but into gold rather, especially China's central bank.

They've been a big, big buyer of gold, and they'll probably continue to be in this type of geoeconomic.

Certainty.

Yeah, and there's plenty of that that we will continue to monitor as we head into your end.

But finally, I do want to get your take on some of the major currency pairs.

What can we expect?

And we have about 60 seconds here.

I like dollar yen lower.

I think the Bank of Japan will be raising interest rates or resuming their normalization cycle at the end of the month.

So I like it.

I see dollar yen closer to the low 140s and I like the Canadian dollar against the sterling.

I think Canada will see more stimulus out of the Canadian government when their next budget comes out on November 4th, whereas in the UK we'll see a more restrictive fiscal stance that could put more onus on the Bank of England to ease.

So I liked Sterling higher.

OK, well, Elias, it was great to have you here in person.

Thank you so much for joining me and thank you so much for all of your insights.

Thank you.