It is not often that we see a simultaneous rally in the U.S. dollar and U.S. stocks. The Dow Jones Industrial Average rose to its highest level since December 2007 today while the S&P 500 rose to a more modest 3 week high. The rallies were sparked by better than expected U.S. data and gains in banking stocks. Normally good U.S. data is more positive for risk than for the U.S. dollar but with the Fed keeping investors guessing about another round of Quantitative Easing, the latest manufacturing sector reported alleviated some concerns about a slower U.S. recovery. We are skeptical of course because the ISM reading conflicts with regional data. Nonetheless the data is good and has provided support for the dollar as investors reconsider their QE3 positions.
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