### POV: WHAT IS DRIVING THE DOLLAR?.........>

DOLLAR: ### POV: WHAT IS DRIVING THE DOLLAR?

-Historically, the Dollar Index is highly correlated to either US Treasury

yields or US equities (e.g. the S&P500). For example, across the bulk of 2017,

the DXY was positively correlated with 10yr yields (correlation touched +0.965

in late Jan), while the correlation between the DXY and the S&P500 was largely

negative (correlation touched -0.89 in Aug).

-At the beginning of 2018, both the correlation between the DXY & yields and the

DXY & S&P500 turned sharply negative. This last occurred for a sustained period

during the Global Financial Crisis, specifically end-2008 to end-2009. Over that

period, the S&P500 rallied by close to 50%, US 10yr yields added 180bps and the

Dollar index dropped by over 15%.

-The market environment today is clearly different to 2008 (Fed tightening vs.

loosening policy) but there is one major similarity: government policy

uncertainty. While Obama was preparing the '09 Recovery Act, Trump is preparing

'18 trade tariffs. Both these policies have something in common: despite wildly

different objectives, they are both highly inflationary.