Analysts at HSBC tested what’s called the “dollar smile theory” on this year’s manic move in markets. What HSBC found was that the dollar rose both on days the S&P 500 fell sharply, and on days it posted big jumps.
“What we do find is the dollar smile is not just a theoretical concept but does indeed work in practice,” said analysts Daragh Maher and Dominic Bunning. Measured using the DXY DXY, +0.35% dollar index, the analysts said the dollar rose 51% on days when the S&P 500 SPX, -0.81% fell more than 0.5%. The dollar rose 57% on days the S&P 500 fell more than 1.5%.
The dollar is also sensitive to big S&P 500 rallies. The dollar rose 59% of the time when the S&P 500 rose at least 2%.
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