Investors continue to buy the greenback for one reason only and that is deleveraging. To deleverage means to reduce risk and with the high level of uncertainty in the Eurozone, investors around the world are cutting back on any risky positions. In other words, even if the U.S. economy is worsening and the Federal Reserve is implementing measures that make the dollar less attractive, if the level of fear in the market remains high, the dollar can still rise.
One common measure of fear is the VIX index and the following chart shows the strong correlation between the VIX (white line) and the Dollar Index (orange line). When the VIX rises, the dollar appreciates and vice versa which tells us that fear is driving investors into the arms of the greenback.
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