The Dollar Is Driving Financial Markets

Nov. 3.09 | About: Randgold Resources (GOLD)

We’ve got this very unstable situation in which Fed policy is dictating the behavior of so many assets. The dollar is at the nexus of this.

- Dean Curnutt, President, Macro Risk Advisors, quoted in “Dollar Calls the Tune For Stocks, Bonds, Oil”, Tom Lauricella, The Wall Street Journal, November 2, C1

Crucial Wall Street Journal article Monday morning showing the incredible correlation between the dollar and financial markets in the last couple of months. The chart in the print edition isn’t available online which is disappointing because I wanted to post it.

The relationship is incredible. The inverse correlation between the dollar and the S&P 500 was 71% in October. That is, when one moves up, the other moves down. In contrast, between January 2007 and July 31 of this year, the correlation was 2% - no correlation.

The dollar is similarly, though not as strongly, correlated with the VIX, credit spreads, gold, emerging market spreads and oil over the last two months.