Non-Farm Payrolls data disappointed and the markets are pricing in dramatic interest rate cuts, so why is the US dollar pushing higher? The answer, it seems, lies in broad-based global demand for long-term US government debt. When investors become spooked by risky market conditions (as would be reasonable given recent events), they move their capital from stocks and other higher-risk investments to long-term US Treasury bonds. While these offer very little return, they are considered nearly risk-free. The assumption is that such an investment can only go meaningfully awry if the government itself collapses. Comparing the EURUSD exchange rate with the US Treasury 30-year "Long" Bond, we see a staggering inverse correlation of 82% as of 10/03/08. This strongly suggests that the greenback is rising because traders are cashing in their investments for US dollars and using them to buy US Treasury Bonds as a safe-haven asset.
US Long Bond vs. EURUSD Spot: Source: Bloomberg