The Tell: This is the ‘bad’ kind of dollar weakness

Context matters.

That’s especially the case when it comes to movements by the U.S. dollar. When the currency is on the rise as frightened investors scramble for safety—think 2008 and the global financial crisis—stocks and other risky assets suffer. In other circumstances, such as when the dollar is rising alongside two-year Treasury yields in response to strengthening economic fundamentals, stock returns tend to be positive.

It’s a similar story when the dollar is weakening. Steve Barrow, head of G-10 strategy at Standard Bank, argued in a Monday note that the dollar’s recent performance, which has featured a fall against the yen and the euro but a pretty restrained decline against other currencies marks a “bad” fall in the dollar, “namely one that is bringing with it a sharp rise in risk aversion.

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