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The euro has weakened sharply since mid-July as US growth continues to outperform that of the Eurozone. Is a new bear market afoot for the common currency?

In this week’s report, we assess the key reasons why the dollar has risen, and if that is set to continue.

If we look at global growth as an aircraft, the plane is experiencing failing engines and will lose more altitude in the coming months. Yet, neither Chinese authorities, nor the Fed or the ECB will be quick to come to the rescue as global growth downshifts. These dynamics herald a stronger US dollar and lower EM risk asset prices.

The geopolitical backdrop remains negative despite some marginally less negative news. China’s stimulus is not yet large or fast enough to prevent a market riot. Two of our preferred equity regions, ASEAN and Europe, are struggling to outperform. Investors should stay defensive overall.

The broader rally that started in June is premised on a Goldilocks narrative that will prove to be a fairy tale. Either by stubborn inflation. Or, by higher unemployment that shows that the war on inflation is far from costless. Or, by both. We discuss the implications for stocks and bonds. And we reveal our new top long dollar cross.