Is it all about FED?

Assets in the seventeenth month of the war

July 2023 a bumpy road for currencies.

Welcome to another episode of selected assets’ monitoring which includes gold, Bitcoin, Euro, and Polish Z?oty quotations in US Dollar. The series began after Russia invaded Ukrainian territory on February 2022, starting the new, escalated phase of the War in Ukraine. Already seventeen months of the war are behind and the last month was quite a turbulent period for the monitored assets. Interestingly, all of them experienced significant growth in mid-July as the inflation readings in US showed the drop of the price hike speed. However, at the end of the period, few days ago, all assets went down. They reacted to the expectations that FED would increase their rate once again this year. Nevertheless, all traditional assets gained; Bitcoin lost its value as quoted in US Dollar.

Gold led the growth

Gold was the leader of the growth last month. The asset got back to the ascending trend after the short break recently. Despite a noticeable fall in June gold has been valuated higher than before the war for five months in the row, already. Due to the impressive performance during the last month we pay now around 2.6% more for the gold ounce than we did in February last year. Clearly, gold remains the reliable indicator of progressing inflation. When the purchase power of Dollar falls, the price of gold rises. In this turbulent times it is a soothing experience seeing gold price chart behaving as they should do. The yellow metal has been consequently growing since November 2022. Still, it couldn’t move higher than USD 2,000 per ounce, the level it reached in spring 2022, just after the war broke out.

Gold performance for last two years. The asset is far above its pre-war benchmark (USD 1,800) but struggles still to break the ceiling of USD 2,000 per ounce; data source: xe.com

Z?oty and Euro follow gold

European currencies performed strongly in July 2023 as well. As usual Polish currency has been moving at the same pattern as Euro. In June Z?oty was impressively stronger, which could be related to the unexpected events in Ukraine, which gave hope for the fast change in the military situation there. This month, however, Eurozone did better. Partially it could be accounted to the persistent stealth mate in Eastern Ukraine. Whether Russia lost its initiative or not, how much the country was impacted by Wagner Group rebellion, how the war will look like in summer – all of that is unclear.

European currencies have been rising since fall 2022; in total PLN did better than EUR. The chart showing relative change of the average market price of EUR and PLN (in USD); data source: xe.com

Nevertheless Z?oty, not Euro, is worth now more (in USD) than before the war. The latter currency experienced few months of value loss in 2023, while Z?oty has been increasing its value continuously since February. As the result Polish currency is today more valuable than in February 2022. I mentioned a month ago that Z?oty had re-gained all what it had have lost since the start of the war. Well, technically it wasn’t exactly true, as it was still -0,4% under the pre-war level. This month PLN is a solid performer and its price has risen by over 1,1% since the start of the war. At the same time Euro is still worth less than before the war. Its price is, however, at the highest point since the beginning of the conflict, but lower by -1,6% than in February 2022.

Bitcoin is a laggard

Although cryptocurrencies are living their own life, independently from mainstream markets, this month Bitcoin benefitted from general weakening of US Dollar. Then it followed other assets and went down a bit last week. Generally, however, Bitcoin behavior is very different from those of other, more traditional assets. While gold, Euro, and Z?oty have been mirroring each other movements, Bitcoin remained different. In this case being different means being underperforming. While gold and Z?oty gained, respectively, 2,6% and 1,1% since the outbreak of the war, Euro lost, as I mentioned before, only 1,6%, Bitcoin is now cheaper by more than 19%. It lost almost one fifth of its pre-war value. On the chart it looks like Bitcoing, a laggard, is never going to match the performance of traditional assets. Bitcoin is no traditional asset and it behaves just like that. It should be no surprise that, when precious metals and foreign currencies are strengthening against US Dollar, cryptocurrencies are experiencing loss of value.

Last seventeen months of the assets?performance, note Bitcoin price diverting from others; chart showing relative change of the average market price of Bitcoin, gold, EUR and PLN; data source: xe.com

Overall Bitcoin performs worse than Polish Z?oty during the war. The charts showing the average market prices of Bitcoin and PLN (in USD) in five years' perspective, as well as their respective levels at the beginning of Russian invasion; data source: xe.com

Watch FED, not war

It becomes clearer every month since the beginning of the war, that currencies and other assets aren’t heavily depended from the military situation in Ukraine. It started with cryptocurrencies but now applies to other classes of assets, too. When mainstream investment assets like currencies and gold react similarly to the information from American economy and Federal Reserve actions it means that the war driven turbulences have become quite insignificant. Markets, so to speak, are watching FED again and don’t pay much attention to Russian Armed Forces fate. Assuming that markets are effective in making predictions, we shouldn’t be afraid now that the war will have a negative, global impact soon. Let’s hope it never happens.

The monthly briefings about asset performance since the beginning of the war are available via links provided in my comment below.