currency impacts upon U.S. equities

The following is offered as an opinion only.

Thurs. morning interest statements from both the G.B.P and the Euro may have an impact upon U.S. equity markets due to the following reasoning.

U.S. markets are being bouyed by the notion that a falling U.S.D allows goods made in the U.S. to be cost advantaged over those made in Europe. If the Euro and the GBP issue statements that indicate rate hikes are on hold for the forseeable future this will in all likelyhood cause a strengthening in the USD.

A stronger USD will negatively impact the growth of sales overseas and therefore should negatively impact the U.S. equity markets.


Thank you.
foto

Ummm... not to rain on your theory, but stocks are being buoyed by the prospect for lower US interest rates. The lower interest rates (relative to what can be had in other countries) in turn are what’s causing the dollar to fall (among many other things).

US interest rates are expected to head lower in the near term. If the BOE provides a statement as you predict, the dollar will FALL because it will indicate a widening gulf between rates of return on investment between the US and UK, making it harder to attract investment capital.

Yes a falling dollar will boost export demand but it will simultaneously increase the costs of imported goods needed for production. Conversely, a rising dollar lowers exports but also lowers imported goods prices. One company will be doing better while another will be doing worse. It depends on which side of the equation they derive more of their profitability from. The relative value of the dollar in the international market really doesn't account for much in the "composite" stock market valuation due to this import/export dynamic.

Yes lower U.S. interest rates have triggered a fall in the USD. That was also coupled with market expectations of on going rate increases in the UK and Euroland.
Those ongoing expectations have been weakened considerably today by the interest statements out of Europe. It was my belief that todays statements were to be reflective of that situation.

We are now facing a changing scenario in which the UK is weakening economicaly and the Euro nations may be peaking.

It is now a race to the bottom economicaly with the U.S. probably leading the way.
What we trade is relative market sentiment. If by chance tommorrows NFP is stonger then market concensus then the dollar will rally. My intuitive thinking is that NFP will however be weaker then expected.

good luck in your trading
foto