Confidence Cushion
The dollar’s favourable response to consumer confidence figures released on Tuesday has demonstrated how risk-currency status for the dollar can only be generated through a virtuous data cycle. In particular, in the current policy environment the data need to register significant upside surprise to nurse markets towards the view that the US economy is strong enough to withstand normalisation in whatever shape or form. Chart 1 shows monthly changes in the DXY vs corresponding changes in the S&P500 and the Conference Board consumer confidence index since 1990. The dollar benefits marginally more from upside prints in the latter rather than asset prices. This can be expected as ultimately it takes rising US household sentiment for investors – especially overseas – to become more confident in investing in the markets and owning the currency.
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