Trends in FX
What Happens to Currencies If the Stock Market Falls 10%? |
Under normal economic conditions strong stock markets lead to strong currencies as foreign investors bid up the base currency in order to participate in equity gains. Certainly this maxim held true throughout the late 1990's as both US stocks and US dollar rallied strongly. Most recently, however, the relationship changed dramatically. Note how US stocks rallied as USD became weaker and declined when USD gained value. Why would this occur? One possible reason is that in the past decade US corporations have become far more global in their business dealings. Companies such as Intel, Microsoft, and McDonalds derive a significant (in some cases a majority) portion of their revenues from abroad. If their cost of goods is denominated in dollars while their revenues are generated in euros and yen, then as the dollar declines, the potential for strong profits is enormous. Therefore, although conventional thinking may dictate that the dollar will drop if stock market falls 10%, the opposite may in fact occur.
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Do you think you know the answers?
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 What happens to currencies if oil goes to $60?
- The Canadian Dollar will rise
- The Canadian Dollar will fall
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What happens to currencies if Gold goes to $500?
- The Swiss Franc will rise
- The Swiss Franc will fall
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What happens to currencies if the 10-year bond goes to 6%?
- The US Dollar will rise
- The US Dollar will fall
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What happens to currencies if social security get privatized?
- The US Dollar will rise
- The US Dollar will fall
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What happens to currencies if China Revalues?
- The Yen will rise
- The Yen will fall
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