The U.S. dollar index sank dramatically Tuesday, accelerating its decline from a 20-year high and boosting stocks and commodities. Kit Juckes, global macro strategist at Société Générale, noted Tuesday that the bond market drives the FX market and other assets.
Treasury rates, which had accelerated a rise after the Federal Reserve's meeting on September 20–21, were declining as investors considered the possibility that policymakers would change course from their course of swift and aggressive rate rises.
"This is not the first time a correction in the former has broken a pattern of rising U.S. bond yields and declining equities indices. In May and again in June/July, the yield on the 10-year Treasury note experienced significant corrections that led to bear market rallies in the equity market.
increased from 2.6% to about 4%, causing the S&P 500 to fall more than 10% and boosting the ICE U.S. Dollar Index by 10%. Major indices reached their lowest levels at the end of last month since 2002.
Beginning October into the fourth quarter, stocks were surging significantly, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite each rising by more than 5% in the previous two trading sessions.
A strong dollar hurt stocks, especially large-cap multinationals that relied on international sales. The dollar's rise also lowered crude futures and gold in September. A strengthening dollar makes unit-priced commodities more expensive for consumers of other currencies.
The U.S. oil standard has increased by more than 8% this week as a result of hopes that OPEC+ will deliver a significant production cut and a weaker currency. Futures for gold have up 3.7%.
The euro has gained 1.8% against the dollar this week, but it's down more than 12% this year and trades below parity. Last month, the Japanese yen traded at its worst against the dollar since 1998, prompting a rare currency market intervention.
Analysts cite hints of fractures in global financial markets and softening U.S. data as reasons for the surge in equities and bonds (bond yields move opposite to price).