The dollar, which benefited from periods of economic weakness during the financial crisis, may be poised to end that relationship as prospects for additional economic stimulus diminish, according to Citigroup Inc.
The CHART OF THE DAY shows how the dollar rose and fell inversely to the performance of U.S. data in the two years after Lehman Brothers Holdings Inc. filed for bankruptcy in 2008, while this year the currency has paralleled weaker economic reports. The dollar gained after the financial crisis began as investors sought it as a refuge, then slipped as risk appetite was buoyed by government and Federal Reserve stimulus programs.
“The market may be making too casual an assumption that U.S. economic weakness is good news for everyone else,” Steven Englander, head of Group of 10 currency strategy at Citigroup in New York, said in an interview. ”Over the last two years when you did have U.S. economic weakness, you also had a policy response.”
There may not be another round this year of such efforts as the 2009 American Recovery and Reinvestment Act and the Federal Reserve’s asset purchases, even as unemployment remains above 9 percent, Englander said.
Intercontinental Exchange Inc.’s Dollar Index has dropped 6.9 percent this year and reached 72.696 on May 4, the lowest level since July 2008. U.S. economic data is underperforming by the most since December 2008, three months after Lehman’s bankruptcy helped fuel the financial crisis, according to Citigroup’s U.S. Surprise Index. The measure examines historical standard deviations of data surprises by comparing releases with Bloomberg median estimates.