Financial stress → US dollar

Common explanation (Ripple · same direction): In a panic, money rushes into the dollar for safety.

This issue: Financial stress at 12 (cold), US dollar at 45 (neutral) — at least one is in the neutral range (40⁠–⁠60), so we make no call this issue.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

Financial stress: Now 0.009. US dollar: 1.3% above its 10-year average, but by less than it usually is.

Tests

Does this link hold up?

Common explanationIn a panic, money rushes into the dollar for safetySource: Federal Reserve Board, “FOMC Minutes, March 15, 2020” (2020).
Tested against our dataAgreement between the positions of Financial stress and US dollar (same month), measured in the direction of the common explanation: +0.10. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in all 8, but that does not mean they always will; data start only in 2013. In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.Not visible in our data
Periods when it did not holdAcross 8 5-year periods, out of step in none.

History

The two lines, overlaid

Data: European Central Bank (ECB), Composite Indicator of Systemic Stress (CISS), new version; Bank for International Settlements (BIS), nominal effective exchange rate of the US dollar (broad basket). Positions: our calculation.

Financial stressUS dollar

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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