9 Minute Read

Tackle Today: The Global Dollar Cycle

September 9, 2022

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«Bulls to the buck: stop rising, please.»


Wednesday’s Tackle Today focused on the dollar’s flexing and how it was trampling risk assets. Let’s pick up on that theme. I came across a paper on “The Global Dollar Cycle” that provides a deep dive into why a strong dollar can be so painful (see here). Here’s the money quote:

“This paper documents that dollar appreciation shocks predict economic downturns in emerging and developing economies… The dollar has strengthened considerably since mid-2021, and a contractionary phase of the global financial cycle is now underway.”

The Global Dollar Cycle

Remember, you can track the movements of the dollar using the ETF UUP or a currency pair such as EUR/USD on ThinkorSwim. This year the dollar has played an important role in pointing the way for stocks. A strong inverse correlation has developed where dollar up = stocks down.

As I type, the dollar is dropping for its third day in a row. Guess who has gone up for three straight days? Stocks. If you’re a bull, root for the dollar to end its rocket ship ride.

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Chart of the Day: Dollar History (Source: @cullenroche)
Source: @cullenroche

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