The Dollar Disconnect

Despite strong US economic data and rising Fed expectations, the dollar has remained sluggish due to market optimism regarding a Hormuz reopening. However, macro divergence and poor USD sentiment suggest a significant upward correction may be imminent.

Key Takeaways

• 1.The US dollar (DXY) is lagging behind fundamental macro outperformance in growth and labor data.
• 2.Market pricing for the Fed is shifting higher, with a potential rate hike now being considered for March 2027.
• 3.Long USD/AUD is recommended as a clean hedge against continued disruptions in the Strait of Hormuz.

Table of Contents

• Sluggish dollar
• The Fed
• CB expectations
• China blues
• China Credit Impulse (% of GDP)
• Poor sentiment
• The dollar trade
• The reversal?
• King US(D)

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