Dollar to Rise as Risks to US Economy Grow

Nikolay Stoykov, Managing Partner at Alaric Securities, on “In Development”, Bloomberg TV Bulgaria

The escalation in the Middle East has pushed oil and natural gas prices higher and increased volatility in global markets. Investors are reacting to geopolitical risk. However, recent moves in commodities and equities mostly reflect short-term fears rather than a fundamental economic shift.

At the same time, the dollar is strengthening as a traditional safe-haven asset. Risks to the U.S. economy also remain significant.

Nikolay Stoykov, Managing Partner at Alaric, discussed these developments on Bloomberg TV Bulgaria’s program “In Development,” hosted by Georgi Mesrobovich.

Oil and gas rise on supply concerns

Stoykov said oil prices above $80 per barrel and higher gas prices in Europe reflect fears of supply disruptions. Investors are particularly watching Qatar, a key exporter of liquefied natural gas.

The current period is seasonally weaker for oil demand. At the same time, markets are pricing in the possibility of force majeure events that could disrupt supply.

“At some point, what oil does over one or two days is more of a temporary reaction that to some extent reflects the risks associated with the conflict, but I would not commit to saying that prices at this moment reflect the reality of how long this conflict will last,” Stoykov said.

U.S. markets follow data rather than fear

Stoykov said the early declines in U.S. trading sessions often reflect differences between retail and professional investors.

Retail investors tend to react quickly to geopolitical headlines. Professional investors often take a longer-term view and focus on economic data.

According to Stoykov, the conflict does not change long-term investment sentiment. Investors should continue to focus on macroeconomic indicators such as unemployment and inflation.

“In the long term, I expect this conflict to be forgotten,” he said.

Metals and the dollar benefit from uncertainty

Stoykov expressed skepticism about the sustainability of the recent rise in gold and silver. According to him, sellers are already appearing at lower price levels.

He said investors should approach the metals sector rationally rather than selectively.

“It is irrational to pick only one or two special metals. If you want to take a position in metals, buy steel,” he said.

Stoykov also noted that the dollar historically strengthens during crises. He expects this trend to continue over the long term.

“I don’t think a 2% movement will affect any industry, but in the long term I potentially expect the dollar to appreciate,” he said.

Risk of a U.S. recession remains

Although the conflict is adding volatility to markets, Stoykov believes the main risk to the U.S. economy comes from already visible negative trends.

He said the probability of a recession was significant even before the latest escalation. Geopolitical tensions could become an additional catalyst.

“I am very concerned about the U.S. economy because I see negative early signs. Even without this conflict, I think the probability of a recession is potentially quite high,” Stoykov said.

Watch the full conversation in the video.

Source: BloombergTVBulgaria