The Strong Dollar May Mean “Fear”- By NEIL SISKIND

As the Fed raises rates, the Dollar can decline if investors feel the Fed is choking off investment and growth.

But, the Dollar can also rise due to the Fed protecting the currency.

In the former case, investors would buy bonds- and sell stocks- as a risk-off trade, flattening the 2-10 yield curve

In the latter case, investors can buy stocks, “IF” the Fed is reacting to growth.

In the case where the Fed is raising rates where no great growth is occurring, investors may buy the Dollar, instead of or along with bonds “IF” the Fed is selling (or not renewing) bonds, while the economy and other economies are is slowing.

So, what is a strong Dollar may just be the second best option for a risk-off trade- rather than a vote of confidence in the economy.

 

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