The dollar smile theory says the greenback should do well when the economy is very strong or very weak. The past few months have turned the smile upside-down.
The dollar smile is a neat theory that says the greenback should do well when the economy is very strong, because then U.S.
assets attract foreign money, or when the economy is very weak, because fear drives a flight to the safety of the dollar. Plot a chart of the dollar against the economy and it looks like a smile, as Morgan Stanley strategists pointed out in 2001.
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