Gold prices have regained their correlation to the US Dollar, as recent Fed actions limit flight-to-quality demand for the Greenback. The US Federal Reserve recently announced sizeable purchases of US Government Treasuries and mortgage-backed securities, fueling fears of excessive US inflation. FX markets have summarily punished the USD following the Fed’s actions, and US Dollar outlook remains bearish through the foreseeable future. Indeed, the dollar has seemingly lost its link to key risky assets and, more importantly, its position as a safe-haven store of value.
Forex Correlations Summary
Forex correlations against Oil, Gold, and the Dow Jones Industrials Average for the past 30 calendar days:
Strongest Forex Correlations
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The Euro/US Dollar has held a near record-high correlation to the US S&P 500, emphasizing that both currencies are firmly linked to global risk trends. The recent upturn in global risk markets bodes poorly for the US currency. Indeed, S&P 500 losses were a key source of support for the historic safe-haven currency. Yet recent events suggest that the US dollar may in fact lose its safe-haven status against major world currencies. The US Federal Reserve’s Quantitative Easing has sparked fears that the USD will lose its luster as a reserve currency. It will be critical to watch EUR/USD – S&P correlations going forward. | |
| Euro/US Dollar and the Price of Gold |
Weakest Forex Correlations
| Australian Dollar/US Dollar and | |
| Euro/US Dollar and |
Written by David Rodriguez, Quantitative Analyst for DailyFX.com
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