Both face years of towering governments debts and the threat of hyperinflation, but while the US dollar plunges against seemingly everything, the Great British Krona continues to march higher.
The dollar index:
Euro/Dollar
Sterling/Euro
So what’s happening?
Unless investors are leaping out of the frying pan into the fire, we must side with Tim Bond of BarCap and conclude that investors are regaining their risk appetite, which is good for sterling, while the dollar is losing the safe haven premium established during last year’s market carnage.
Here’s the summary of Bond’s most recent note, “Upside down Bulls.”
Some market participants appear to have misinterpreted the fundamental factors behind recent trends in US treasury yields and the dollar. The negative correlation between these two assets, with the dollar falling even as government yield rise, has been taken in some quarters as indicative of a looming US funding crisis. In reality, these coincidental moves, in our view, reflect a global economy that is gradually returning to normal.
Related links:
BarSlap! – FT Alphaville
Tim Bond: “Upside down bulls” - Long Room