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The dollar is moving sharply higher against most major currencies following the jobs report....

The dollar is moving sharply higher against most major currencies following the jobs report. It's the opposite of recent market action where, perversely, strong U.S. economic news saw the greenback drop as money moved into "risk" assets, of which the euro, the pound, and the aussie are now thought of. The euro -1.1%, pound -0.7%, aussie -0.4%, yen -1.1%. UUP +0.8% premarket.
Comments (1)
  • Regarding the above item suggesting that the USD shouldn't be moving higher with other risk assets:

     

    Contrary to what the lesser informed believe, there is nothing unexpected at all in the USD rising on good monthly jobs data, because that provides a double boost for the USD:

     

    1. reduces QE3 expectations (bullish for the USD because QE3 seen as potentially diluting USD purchasing power) and also

     

    2. raises expectations for Fed rate increase (also bullish for the USD)

     

    The USD moves opposite of stocks because it’s a safe haven asset (due to its low interest rate) and stocks are risk assets.

     

    Any news that raises interest rate expectations OR lowers QE 3 boots USD, regardless of whether the news is good for risk assets or not.

     

    The inverse correlation between the USD and risk assets is complex and far from fixed. Unlike the USD and EUR, the USD and most risk assets do not automatically move in opposite directions. Any news that feeds expectations for rising USD value (like less QE3 or rising rates) will boost the USD even if the news is also good for risk assets.

     

    The inverse correlation between the USD and risk assets is complex and far from fixed.
    While the latest US jobs figures, and ongoing EU troubles (far from over) are bullishfor the USD and should give it a boost, investors should not be too overweight in USD denominated assets.

     

    Because the policies of most developed economy nations and currencies (USD, EUR, JPY, GBP, AUD, ETC) endanger the long term purchasing power of these currencies, everyone needs to hedge currency risk. Everyone needs to ensure their portfolio is diversified into the strongest currencies just as it is into the strongest sectors.

     

    I discuss these topics in depth in my book, The Sensible Guide To Forex. See:

     

    http://amzn.to/x7YOp1

     

    for a more detailed description.
    10 Mar 2012, 02:43 PM Reply Like
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