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Diving dollar causing turmoil with global markets, German stocks drop nearly 2%
A sharp two-day fall in the dollar sent global equities reeling Friday.
The German DAX (XETRA: .GDAXI) shed 1.7 percent to post its worst session since June 29. The French CAC 40 (Euronext Paris: .FCHI) index, meanwhile, dropped 1.6 percent, notching its biggest decline since April 18. For the week, the DAX and the CAC fell 3.1 percent and 2.2 percent, respectively.
The dollar dropped 0.27 percent against the euro (Exchange: EUR=) to $1.166, building on sharp losses from Thursday's session. It's now down more than 10 percent against the euro for 2017.
The U.S. currency sold off after European Central Bank President Mario Draghi said the ECB will discuss monetary policy tightening in September. He did not set a time frame for the tightening of the bank's ultra-loose monetary policy, but said the ECB saw signs of "unquestionable improvement" in euro zone growth.
"Our work shows if you look at the CFTC data for example, you've got the strongest number of long positions in the euro in at least six years," said Paul Christopher, head global market strategist at the Wells Fargo Investment Institute.
"We think the euro is extremely stretched here. We think Draghi went out of his way to sound neutral and stimulative, and the euro hardly skipped a beat before it was off to the races again," he said.
The euro's rally against the dollar dragged shares of European exporters lower. In Germany, BMW and Siemens fell 2.6 percent and 1.8 percent, respectively. In France, automakers Valeo and Peugeot saw their stock drop 6.9 percent and 3.4 percent, respectively.
Emerging markets also fell slightly. The iShares MSCI Emerging Markets exchange-traded fund (EEM) (NYSE Arca: EEM) slipped 0.2 percent.
U.S. equities also dropped. The Dow Jones industrial average pulled back about 60 points, while the S&P 500 (INDEX: .SPX) and the Nasdaq composite both fell 0.1 percent.
That said, strategists at JPMorgan said the weaker dollar will serve as a tail wind for stocks as it boosts corporate earnings.
Dubravko Lakos-Bujas, head of U.S. strategy and global quant research at JPMorgan, said in a note that he expects the dollar to weaken further . He also said: "Our analysis suggests for every ~2% decrease in USD, S&P 500 EPS has historically been revised up by ~1%."
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