It’s been very much tied to risk appetite and QE. Also stocks.
Dollar went astronomical after Aug 2008, only to drop hard when QE(1) was announced.
Rise in DXY in early-2010 was followed by a drop in DOW below 10,000 in mid-2010. Rise of DXY in early 2011 was concurrent with a drop in DOW to the low 11,000 range. 2012 peak in DXY, DOW hiccuped in April-June.
Like it or not, dollar strength has been pretty much inversely tied to risk appetite since 2008. Historically, this hasn’t been true, but the last few years have been different.[/quote]
No, it wasn’t followed by a drop, it was concurrent with the drop. And the fall in the dollar was concurrent with a rise in GDP. Since then, while GDP has been all over the place, the dollar rose and has pretty much stayed flat for most of the last 3 years.
The DOW is a lousy indicator. (Nobody watches the DOW except for people who don’t know what to watch.) The S&P is better but not a great indicator of the economy as a whole. It’s a bitter indicator of perceived risk. And it’s been on a tear for 3 years, trading within a 120 pt channel, with the channel rising at 70 to 80 pts per quarter for over 3 years now, only twice breaking out of the channel for a short time. Once at the top in early 2012 and again at the bottom the end of the same year. The correlation is that when the dollar is stable, the S&P moves up. Neither are strongly correlated with GDP deltas. And the fed has acted consistently during that period, with all their moves trailing the economy. Which is exactly what they’ve been saying they’d do. They may have screwed up early on, but the fed has been masterful the last 3 years.
