The dollar sank the most in seven years against major currencies as services data raised concern about the strength of the American economy. U.S. stocks staged an afternoon rally to erase losses as crude surged past $32 a barrel in New York.

The Bloomberg Dollar Spot Index tumbled 1.7 percent after data showed services industries expanded at the slowest pace in nearly two years. The Dow Jones Industrial Average jumped 130 points as Exxon Mobil Corp. rallied. Crude surged more than 7 percent after its biggest two-day plunge in seven years, and commodities gains led Brazil’s Ibovespa to the biggest equities gain in the world.

While data showing U.S. companies hired more than 200,000 workers in January provided a fresh sign that the labor market continued to power past slowing growth, the services miss sparked concern that the largest part of the American economy isn’t immune to weakness elsewhere. China’s slowdown and crude’s rout have dragged down growth in oil-exporting nations, fueled speculation of defaults by commodity producers and battered earnings at corporate giants.

Stocks

The S&P 500 rose 0.2 percent at 2:19 p.m. in New York, while gains in Exxon Mobil Corp. and Chevron Corp. helped the Dow Jones Industrial Average erase a loss of almost 200 points. The broader index is looking for its first gain in February following a 5.1 percent drop last month that delivered the weakest start to a year since 2009. 

“This is an emotional, sentiment-driven market and it’s likely to remain tied to oil,” Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said by phone. “Nerves are pretty frayed after yesterday’s decimation with the deterioration in oil prices pilling over into equity markets. Most people will be on pins and needles ahead of the jobs report.”

David Fuller's view

Well, it was another volatile ride in the markets today, with the Dollar Index’s downward dynamic being an important feature.  News wires credited (blamed) services data for this move but I say it was intervention, once again.  You will not find that in the news but the US Treasury almost certainly pushed the Dollar lower at the request of Janet Yellen’s Federal Reserve.  Look at the daily chart above; it has been hit hard since March 2015, following every test of the psychological 100 level.  Moreover, traders are being conditioned to anticipate these bear raids.

Why would the Fed want Treasury intervention to cap the Dollar? They would be cardless not to, because a sustained break above 100 for the Dollar Index would cause real problems as I have mentioned repeatedly in the Audios.  A Dollar Index momentum move to 120 anytime soon could trigger a US recession and it would certainly hit the earnings of Autonomies.  It would also cause big problems for any foreign borrowers of Dollars, from emerging markets to non-US corporations.  Conversely, a Dollar Index in the low 90s region would have the opposite effects.

As DXY weakened industrial commodities rallied, led by crude oil and precious metals with high-beta silver leading.  Firm crude oil reversed a bad day on Wall Street with the DJIA experiencing a swing of over 420 points.