[AndrewWoo]

This appears to be the strong theme that is playing out now (Search for dollar alternatives). Risk is clearly on, with the S&P having been up the last three days. However, looking across risk correlated assets, commodity prices, except gold, are well below recent highs, credit spreads are above their recent lows and equity prices are at, but not above, their recent peaks. Euro zone 2y yields are at all-time lows, suggesting that markets do not believe that the recovery will be strong enough to get the ECB to raise rates aggressively (and spreads have moved in favor of USD, rather than against, in recent weeks.) Gold’s rally beyond that of other commodities is similarly not typical of a pure risk-on rally in asset markets. Even the pattern of currency moves since Friday's close does not display the classic risk-on pattern, with JPY and CHF being at the middle of the pack rather than at the bottom as is normally the case when risk is being bought. Risk appetite as contributing to but not driving these currency moves.

This leaves with USD selling as representing a significant motivation in this move. Consider that the case that central banks would be USD sellers within G10, that there was increasing evidence that the US and foreign private sector found non-USD asserts more attractive, and that the US's fiscal stance was an increasing negative (USD risk premium, US fiscal profligacy and the 'portfolio effect'). These forces are pressing on the USD independently of the pure cyclical indications.

While G20 had no surprises, and there was consensus that withdrawing the stimulus prematurely would be a major policy mistake, the USD emphasis on downplaying exit strategies and maintaining the stimulus probably contributed to a sense that the US is nowhere close to restoring normal policy settings.