FX Weekly

The report analyzes the USD rally, attributing it to hawkish Fed expectations and unwinding hedges, while suggesting limited further upside due to aggressive market pricing. It highlights risks to the USD including fiscal imbalances and volatility in AI-linked capital flows.

Key Takeaways

• 1.The hawkish June Fed meeting has driven the USD to its highest level in over a year, but market expectations for further hikes now look overly aggressive.
• 2.Capital inflows into the US from the AI boom remain unhedged but are dominated by volatile portfolio flows, which could undermine the USD's safe-haven appeal during market stress.
• 3.Long-term bullish outlook for the USD is maintained, though limited further upside is expected; gold (XAU) may recover if fiscal dominance fears over the Fed resurface.

Table of Contents

• FX and gold outlook
• G10 FX Portfolio
• FX Portfolio in 2025
• FX Focus
• USD: the dot-com bubble vs the AI boom
• USD: it's the economy, stupid
• The Fed, US rates and cost of hedging
• All is not well
• Conclusions
• FX Focus recent publications
• Week ahead: key themes & trades
• FX Positioning Update
• FAST FX Fair Value Model Update
• Short-term fair value charts
• FX Fair Value Model Update
• FX Risk Index

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