As widely expected, the European Central Bank opted to keep interest rates unchanged, with the refinancing rate (0.05%), deposit facility rate (-0.2%) & marginal lending rate (0.30%) all on hold in the wake of its April policy meeting. Despite the ho-hum decision, there were some unexpected fireworks (or more accurately, confetti) in ECB President Mario Draghi’s subsequent press conference.
One dubious trading theory that is currently seeing its day in the sun is that the U.S. dollar and U.S. stocks move together, or in other words, that they are positively correlated. After all, both the U.S. dollar index and S&P 500 have rallied in each of the last five months as the United States has become the proverbial “best house” in bad global economic “neighborhood.”
It is no secret that a significant focus had been placed on whether the "patience" language was going to be removed from the FOMC statement. Yet, as noted in last Wednesday morning’s pre-FOMC commentary, even as the Fed removed the allegedly critical patience from its statement, it respected recent weakness of U.S. and global economic data in substituting something which was just as dovish.
North American equity markets are feeling pretty healthy this morning as they are edging higher on the day so far, but the U.S. dollar isn’t feeling the same sort of love. If the market continues to believe that the Fed will not do anything to rock the boat over the next few months, there could be a lot more room to run for equities.