Wednesday, March 24, 2010

A Look at the U.S. Dollar and Treasury Rates

Note today's upside break in the U.S. dollar (UUP; top chart) and in 10-year Treasury rates ($TNX; bottom chart).

During the market decline of 2008 and 2009, we generally saw a rising dollar accompany falling stocks and falling interest rates (rising Treasury note prices). The dollar and Treasury debt acted as relative safe havens during the rout of stocks.

Now, however, we have been seeing a stronger dollar since late 2009 along with stronger stocks. Treasury rates have also been on the rise since that time.

Rising rates do not seem to be signaling inflation, as long as we have a firm U.S. dollar. Indeed, commodity prices have stayed relatively tame and were down sharply today. Rather, buying of Treasuries from abroad may be slowing down and traders may be betting that the Fed will tighten credit conditions before inflation becomes a problem.