US Dollar Index’s Influence on European Markets

According to analysts at UBS, the US Dollar Index is considered the “most important macro factor” affecting market returns in Europe.

In a client note released on Monday, they noted that the dollar index, which gauges the greenback against a basket of currencies, “marginally” increased its significance from the previous month in August.

The analysts also highlighted that the spreads between benchmark US 10-year Treasury yields and the more interest rate-sensitive 2-year yields were “key drivers” in European markets.

Compared to July, European valuations remained “relatively unchanged” in August, with UBS stating that the aggregate forecast PEs suggest that the European market is aligned with its historical median.

They further commented that, by style, “Quality and Fundamental Growth are still looking expensive compared to their history, while Value styles and Low Risk continue to be on the cheap side.”