JP Morgan: USD regains positive correlation with US Equities

JP Morgan: USD regains positive correlation with US Equities. Foreign exchange movements are difficult to predict, but are driven, amongst other factors, by interest rate and growth expectations, relative to other economies. The U.S. Dollar has increased 11% on a trade-weighted basis this year, supported by a pick-up in growth in the U.S. economy, and expectations of Fed rate hikes in 2015, in contrast with weaker growth and lower rate expectations elsewhere, especially in Europe and Japan. These forces have pushed the correlation between the U.S. Dollar and the S&P 500 into positive territory, meaning that at this stage of the cycle the predominant driver of dollar strength is not its safe haven but rather its growth characteristics. If the path of monetary policy and economic growth between U.S. and its trade partners continues to diverge, we can expect the U.S. dollar outperformance to continue.

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