Are The Dollar and the Market at a Tipping Point?

By John Derrick via

Despite the Fed raising interest rates since December 2015, U.S. financial conditions are the easiest since 2014.

One of the key drivers of the easing of U.S. financial conditions this year, is the weak U.S. dollar (USD). The FOMC met again this week and the results reinforced the Fed’s recent dovish overtones. On this news, the dollar sold off and equities moved higher.

The dollar rallied sharply post-election, as the Trump agenda was very pro-growth and many investors believed that the Fed would need to respond aggressively (i.e. raise interest rates) to counter balance the massive fiscal stimulus that was coming. We all know how this has turned out. Fiscal stimulus is still a pipe dream, dysfunction still rules in Washington, D.C. and at the same time, European growth has positively surprised.

A recent BofA Merrill Lynch global fund manager survey captured portfolio manager “tail risk” concerns. From June to July, global investors had become uneasy that the Fed and or the ECB would push a “normalization” agenda and make a significant policy mistake.

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