The Greenback Attack; US Dollar Shortage

The Greenback Attack; US Dollar Shortage A strong US Dollar is the arch nemesis of risk assets given its role in funding credit and being the de facto global reserve currency.  The US Dollar has been steadily rising since Feb 2018 when the current business cycle’s growth rate peaked. All the while risk asset valuations have been topping with the S&P500 being the last hold out.  USD strength is now at a point where it is negatively impacting underlying economic growth. Source: The repo market rates spiked over the last week as those funding markets are seeing a shortage of USD and high-quality collateral such as US Treasuries. This stress in the “plumbing” of the financial system is worrying. USD vs PMI To look at it another way, if we invert the year over year change in the USD there is a high correlation to the phasing of the business cycle as represented by the ISM Purchasing Manager’s Index.  As the USD weakens, we see the ISM PMI increase, and vice versa. When the USD is strengthening the ISM PMI rolls over as does the business cycle.  The Oct 2019 ISM PMI printed 47.8, the weakest print in 10…

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