Why We See More Dollar Upside

TS Lombard recommends long USD positions against SEK, CAD, and NZD, anticipating that a more aggressive Fed policy path than currently priced will widen rate differentials. The firm notes that global growth has softened and that current market pricing for Fed cuts is inconsistent with sticky US inflation.

Key Takeaways

• 1.The Fed is expected to hike once this year and four more times next year due to sticky supercore inflation.
• 2.The firm is long USD versus SEK, CAD, and NZD due to interest rate differentials expected to widen.
• 3.Global growth momentum has weakened, impacting trade prospects for currencies like CAD, SEK, and NZD.

Table of Contents

• Is the market too dovish on Fed policy?
• Global growth signals have weakened.
• USD long positioning increasing but remains modest.
• Bearish fundamentals for CAD.
• EM FX vol looking increasingly complacent.
• Current Trade Recommendations
• Model portfolio performance
• Model portfolio metrics since inception

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