Pop! Goes the Dollar
A penny for a spool of thread, a penny for the needle.
That’s the way the money goes, Pop goes the weasel.
English Nursery Rhyme
After hitting a 14-year high, the US dollar sold off sharply today, which is a carryover from yesterday’s dramatic selloff. Even more concerning is, on a weekly basis, this is the second consecutive week that the US dollar has traded under pressure to lower pricing.
Although the US dollar has been on an upward trajectory for the last half of 2016, since the presidential election in November, the US dollar’s value has gone up dramatically, almost parabolically. In fact, since November 8, of last year, the US dollar has increased by roughly 8%. However, over the last two weeks, the US dollar has given back roughly 2% of those gains.
In the English nursery rhyme, “Pop Goes the Weasel”, the word pop is Cockney slang meaning to sell or to pawn. The selling of the weasel (slang for overcoat) makes reference to the fact that even poverty-stricken individuals were expected to have a nice suit to wear to church on Sundays, which would then be popped (sold or pawned) on Monday. In much the same way, the US dollar has popped. This selling seems to signal a dramatic change in current market sentiment, as we are now seeing the pendulum swing the other way.
As we have spoken about previously, recent advances in both US equities and the US dollar have been largely predicated on a “short-term” optimism which surfaced immediately following the presidential election results in November. This optimism was fueled by the belief that a new administration would accomplish dramatic and transitional changes in the economic environment here in the United States. Through a combination of tax cuts, regulatory reforms, and major infrastructure projects, this new administration would revitalize our economy, ramping up our GDP (Gross Domestic Product).
Recent weakness in the US dollar and equities markets, in conjunction with rising precious metals pricing, suggests that the tide might have turned and traders, as well as investors, are questioning the outcome of the “Trump Rally,” as we get closer and closer to Inauguration Day. It also suggests that investors and traders are now raising concerns about the potential for an increased aggressiveness by the Fed in interest rate hikes this year.
With just 15 days to go before Inauguration Day, the uncertainty factor in what lies ahead seems to be ramping up and building steam. As such, one can expect more volatility in the days and weeks ahead. We could also be witnessing the beginnings of a major rally in safe haven assets.
Wishing you as always, good trading,