Forex Correlations Update: US Dollar Closely Linked to S&P 500, Risk Sentiment
Recent sharp declines in the US S&P 500 and other financial market risk barometers have pushed cross-market correlations sky-high through recent trade. All leveraged markets have been moving much in the same direction through recent episodes of financial market distress—emphasizing the level of interconnectedness across key markets. A glaring example is the record-correlation between the FX Carry Trade and Gold prices. These two seemingly unrelated markets are both highly leveraged and have seen impressive gains through recent months. With a sharp episode of financial market deleveraging, they likewise fell in unison against the resurgent US Dollar. It will be critical to monitor any and all turmoil in financial markets and its effects on the US Dollar.