US dollar finishes at the lows of the day in a break with the recent correlation | Forexlive

Cross-asset correlations have broken down this year.

The old risk-on/risk-off trade has been dead for awhile as the market sorts through the implications of the US trade war. That’s often been replaced by a Buy America/Sell America dynamic where we see US stocks, bonds and the dollar move in tandem.

Today there were strong binds in equities (S&P 500 up 2.2%) and bonds (US 10-year yields down 7 bps) but the dollar softened across the board. The dollar selling is a reversal of its positive momentum on Tues-Wed and may have been helped along by comments from the Fed’s Waller (though it’s not a new position for him).

At the same time, this week’s initial jobless claims report continued to show stability and a low level of layoffs.

On the trade front, there is mixed reporting on whether Washington and Beijing are talking as Chinese top officials said unquivocally that no talks are happening but US officials said the opposite. There is also hope for some kind of US-India MOU on trade, though I wouldn’t expect much for details.

On net, I see the drop in the dollar today as a sign of continued doubt in the process and strategy but we may be into a new phase where the market is more selective and believes that Trump won’t do anything too crazy to hurt equities or the economy. In that scenario you would get a sluggish US economy but it wouldn’t be severely impaired and the Fed would eventually have cover to cut rates.

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