What influence does the USD/EUR have on stocks

Discussion in 'Stocks' started by WhiteOut56, Feb 13, 2012.

  1. I guess this could apply to any major currency pair..

    Just say you have a stock ABC, and the USD/EUR is down 1%. So the dollar is weaker to the euro by 1%
    Is there anything you can say w/ regard to what ABC should be priced at w/ regard to this currency move?
  2. Depends if it's dual listed or not.
  3. Infinite variance will prevent you from identifying a persistent/coherent correlation. :cool:
  4. piezoe


    In general, and on average, as the dollar weakens versus the currencies of its trading partners stocks priced in dollars will go up in nominal price to compensate, assuming other factors that affect price don't negate the effect of a weaker dollar. Earnings reported in nominal dollars will go up, and everyone will cheer and be happy because the market is going up.

    There are times when the market seems to be almost attached at the navel to the dollar futures, or vice versa, and other times when they seem to move more less independently. They don't usually get too far out of whack though, so if for example you see the dollar strengthening over a period of days while the market is also going up you may reasonably expect that eventually either the market or the dollar will move back down. In principle, if real earnings are improving and companies are raising real dividends, then the market can move up even if the dollar stays steady or moves up some.

    Most people seem to be on the side of thinking that Fed policy will continue to lead to inflation of prices and deflation of buying power for the U.S. dollar. Those who think that are expecting the market to continue its rise perhaps to new all time highs. Of course how long this might take, assuming it occurs, is the sixty-four-thousand dollar question. And looming large in the background of all this is the Feds mandate to control inflation, using of course their "special" way of computing inflation. Presumably, if inflation gets too far out of hand from their "special" perspective they may raise interest rates. That, assuming the past to be a reliable guide to the future, would strengthen the dollar and cause the market to go down some, or at least cool off.

    Then there are those of us who are rather cynical and believe that human nature will keep us on the present path of large deficits and dysfunctional government until a true crisis arrives and we are forced to be reasonable. For example, if you had to use a wheel barrow to haul enough cash to the store to buy a six-pack, that would be a true crisis.:D