One of the justifications for the stock market rally this year was dollar weakness contributing to overseas earnings for US multinationals. With everyman and his dog expecting the dollar to fall like a stone for the foreseeable future, it is reasonable to expect US corporate treasurers to be under-hedged against the possibility of unexpected dollar strength.
We’re not sure at what point corporates will be compelled to hedge, but having seen a significant shift in market psychology over the last week, I’d suspect it won’t be long. That should be a further boost for the dollar in the days ahead,as Q4 draws to a close. EUR/USD sits at session lows of 1.4609.
