Mr. Bernanke tries to prop up the dollar while running a loose monetary policy; stocks fall.
The dollar rallied as Mr. Bernanke said that the dollar could be at risk if we did not control the budget gap.
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Why? Mr. Bernanke is in a tough spot: he is running a loose fiscal policy but he needs to help out the dollar.
His only attempt to help the dollar is to call for more fiscal discipline and shift the onus onto legislators.
The call for fiscal discipline means higher rates, which is positive for the dollar.
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Of course, more fiscal discipline may be bad for stocks, at least intermediate term, because it implies less government spending, and less stimulus.
Other are trying to prop up the dollar as well. We had comments in Europe from Joaquin Almunia, EU economic and monetary affairs commissioner. He said that he was concerned with Euro appreciation and would be discussing this today and at the G7 meeting over the weekend.
This makes nonfarm payrolls, out tomorrow, even more important than usual. We are looking for a September loss of 180,000 jobs, an improvement over the loss of 216,000 jobs in August.
A very low number of losses-say 100,000-greatly increases the possibility that the Fed will raise rates earlier rather than later.
That could mean that both stocks AND the dollar could rally.
And THAT would be a major change from the third quarter.
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