USD’s Silent Decline Helps Fuel Strong Rally in Stocks

USD’s Silent Decline Helps Fuel Strong Rally in Stocks

$USD $EUR $JPY

The USD finished higher Friday after data showed the US labor market dramatically improved in May, but the Buck ended lower on the week for a 3rd wk running.

Investors might not have noticed it amid all the excitement, but a quiet decline by USD should get some credit for the stock market’s strong rally.

The ICE U.S. Dollar Index DXY, +0.28%, a measure of the Buck Vs a basket of 6 peers rose 0.3% Friday at 96.70, but saw a 1.4% weekly decliner.

The index had traded at a 3-yr high near 103 in mid-March as the chaos created by the C-19 coronavirus created a global run on USDs. The index has retreated nearly 6% from that high, leaving it up 0.6% YTD.

There were plenty of distractions last month but the almost silent slide in the greenback must go down as one of the most unremarked devaluations in history,” the chief global equity strategist at Jefferies, wrote in a note last Wednesday.

A weaker USD is welcome news for US stocks, as it makes exports of US good cheaper to foreign buyers.

In my discussion with economist Bruce Barren Saturday afternoon he agrees and notes: “Such a decline in the USD fits well into President Trump’s economic recovery plans as a lower valued dollar creates more exports for US goods and thus greater opportunities for employment. It is employment that is a Key priority to our economic health for the more people working creates a more positive effect for consumer confidence which is a Key drivers for economic expansion and further drives the value of US businesses. The latter not only causes a positive effect in our stock market, but also fuels corporate merger and acquisition opportunities, a Key element in strengthening corporations which in turn leads to higher business efficiency and thus, higher corporate market values.” Bruce is a highly respected international economist and Chairman of The EMCO/ Hanover Group

And thanks to USD’s role as the international reserve currency, it can also be a boon for global growth, particularly since its run-up came as companies around the world drew down credit lines in an effort to hoard it, boosting funding costs.

The Fed responded by expanding existing swap lines with major central banks and opening new swap lines with others, while taking additional steps to meet USD demand.

Friday: The .DXY late Friday was up 0.18% at 96.93. It was down 1.4% from last Friday’s close. On the day, USD was 0.38% stronger Vs EUR at 1.129. And Vs the safe-haven JPY the USD was up 0.44% at 109.61 Yen.

Have a terrific weekend, Keep the Faith!

USD, EUR, JPY, ,DXY, demand, C-19, coronavirus, Fed, stocks, rally,

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.