The dollar, U.S. bond prices and stock index futures all tumbled as safe-haven gold and yen jumped on the back of a report that China is considering reducing or halting its purchase of U.S. government debt.
The USD Index has turned down sharply in the last few weeks and formed a decisive break out of a corrective channel, which is an important indication of a completed A)-B)-C) advance from September low.
In September 2015, this column argued that Federal Reserve hikes are largely negative for the U.S. dollar once a tightening regime begins. Let’s look at how the U.S. dollar responded to each of the last three Fed tightening cycles (1994-1995, 1999-2000 and 2004-2006) as well as the existing one. One common theme was found.