MARKET TALK: Funding-Currency 'Competition' Helps Dollar

Comparing the Dollar Index's correlation to stocks and Treasurys, Wells Fargo says the currency tends to be more correlated with stocks "when the greenback has faced competition, or has become less attractive on a relative basis, as a funding currency." Despite Tuesday's whipsaw price action, yen- and euro-carry trades have become increasingly popular. The bank believes the emerging contest between funding currencies "potentially explains the changing dollar dynamics" that lie at the heart of why the greenback now responds more favorably to risk-positive data. "While this competition for a funding currency role persists, so too might the positive correlation between the dollar and equities."