The Dow goes Inverse to the Dollar

You can track the dollar index here, select which range by clicking the tabs.  The best place to watch the Dow Jones index is here.  I don't think it is any big discovery to say that when stocks go up, expect the dollar to go down, and visa versa (see confirmation at SmartMoney, see also 11725).  My interest here, outside of just my obsession with tracking things, is to discover at what scale this is true, and what are the conditions that obtain when it is not true. 

That said, it seems that the correlation runs almost on a hourly scale. Note the two graphs below between 9:30 and 12:30 on 8/27/2009, the dollar is on the left and the Dow is on the right.  The inverse relation is obvious.  What happened around 11 AM ?




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  1. dollar dow tracking
  2. item 1175

Comments


Seth says
seth 2009-08-27 12:12:08 12472

Big dramatic drop in dollar after 2pm eastern.  I've seen these big dramatic drops and rises before, i rarely get explanations. The Dow, of course, kept rising, but nothing dramatic.
The dynamics of the situation may be explained in this cnnMoney.com article: CURRENCIES: Dollar Slumps As Stocks Bounce Back.

Mark de LA says
China is rumored to be divesting itself of dollars. Oil is up and Gold is up. Stock market is up. Treasury is lowering interest rates - not a $-strengthening act. I suspect that more than one effect should be tracked. I also suspect that any place except the $$ is a good place to have your investment reside. 
I wonder if it coincided with news that the Obama increased the budget deficit by 2 trillion in 10 years.


Seth says
source: MR
I wonder if it coincided with news that the Obama the budget deficit by 2 trillion in 10 years.
Not sure what "it" refers to, but if "it" refers to the dramatic drop i mentioned on the Thursday, then any news from Tuesday would have been already incorporated.  That said people do fear that increasing the deficit will tend to drive the dollar down.  You could even interpret the three year graph below as showing the growing deficit spending for the war was driving down the dollar's value ... but they you would need to explain why the deficit spending that started around September last year, which was intended to soften the recession, dramatically drove the dollar's value up, not down.  So, me thinks the relationship is far more complicated.  The Fed has a lot of knobs to tinker with the dollar ... their objective is to moderate inflation and deflation.  The Fed has some pretty smart people, much more knowledgeable about these matters than you and I, and they operate fairly independently of politics.  Watch how they ease up on the accelerator and twist their knobs as the economy recovers over the next year or two.  Perhaps we will learn if the deficit/dollar relationship is quite as ominous as some people say.



Seth says
It is hard to find a more clear cut example of this happening on a hourly time scale.  It seems to be much more dramatic when the stock market jumps up like  it did today.  There are 2 questions that i want to know answers for now:
  1. If you calculate the value of the dow in dollars, then calculate the drop in dollars, how closely do they match?
  2. Why don't financial pundits always compensate for this in their analysis like this one?
  3. Does the stock market going up cause (force) the dollar down?  Or is it visa versa?


Seth says
Well as of now the dollar has dropped about 1% from its open ... the Dow has gone up about .3% .  My thesis says don't take much stock in the  Dow going up when the dollar drops much more.  In other related news, Gold rose to above $1000 an ounce. 

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See Also

  1. Thought The Correlation of the Dollar Index with the Dow Jones index with 0 viewings related by tag "dollar dow tracking".