Dollar Index Correlation with Short Term Rates

I wanted to highlight a few quick recent charts of how the US Dollar Index positively correlates (moves in the same direction) with the 3-month Treasury Bill Discount Rate.

It's not the most fascinating topic, but it's definitely important to know of this relationship, so let's take a look at a couple of recent charts.

First, a ‘zoomed in' view of the recent action:

You can view this comparison in StockCharts with symbols:

$IRX for the 3-month T-Bill Discount Rate (short-term)

$USD (US Dollar Index - a basket of 6 FOREX pairs)

What's interesting is that - relatively - the indexes move almost in lock-step with each other, which makes sense.

While this isn't the "Fed Funds Rate," in general higher rates translate into a more attractive (expensive) currency, and lower rates translate into a weaker currency for a country.

We're seeing this in the recent charts of short-term Treasury Yields and the Dollar Index as expected.

This is in line with talk of the Fed "eventually" (at some point in the future) raising the Fed Funds Rate... but that is an entirely separate discussion.

Let's step the chart back to see the one-year comparison in yields and the Dollar Index:

 

 

In both charts, the US Dollar Index - green - is scaled on the left side of the chart while the 3-month T-Bill Discount Rate is scaled - in percentage terms - on the right side.

Thus the current 1.4 value corresponds with 1.4%.

The 3-month T-Bill Rate - and shortly after the Dollar Index - bottomed at the end of 2009 to give us the current simultaneous rallies we're seeing.

I wanted to call this to your attention as an interesting comparison and method to sharpen your inter-market analysis skills.