There is the old adage that if an investment story makes it as a cover of a business publication its trend is over. Well, the Economist came out with its cover for the week highlighting the panic of the dollar. What happened today in the currency markets? We had the strongest dollar rally in the last two days since the beginning of the credit crisis. While I still may not be convinced that the cover story adage is worth committing capital, markets do move to extremes and see rebounds. After a strong month, this may have been the time for a small dollar rally.
Surprisingly, the dollar rally has come at the same time as the US economic news has been poor and the Fed has been telegraphing another rate cut. One would expect that the dollar would further decline on the expected further decline of US interest rates but other factors seem to be in play. The dollar rally has been matched by a significant sell-off in crude oil. Crude and the dollar have seen a negative correlation in 2007, so an almost $10 per barrel decline may be the best tonic for an anemic dollar.
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