The Dollar Paradox

Despite superior US economic growth and labor market data, the USD remains flat because investors expect a quick resolution to the Strait of Hormuz closure. This creates a 'Dollar Paradox' where pricing must eventually adjust if the geopolitical gridlock continues.

Key Takeaways

• 1.Macroeconomic drivers such as robust US hiring and growth favor a stronger dollar, but FX markets are stalled due to expectations of a Strait of Hormuz reopening.
• 2.Investors are avoiding long USD positions because they anticipate a swift end to the Iran conflict to restore oil flows and stabilize petrol prices.
• 3.US economic data is significantly outperforming peers, with GDP growth forecasts seeing only moderate downgrades compared to Europe and China.

Table of Contents

• Macro Strategy
• THE DOLLAR PARADOX
• Near-term reopening odds falling on Polymarket
• USD hedging cost for EUR investors has declined
• US bucking the trend
• More moderate US downgrades
• Stronger US labour-market data recently
• Fed speak yet to become more hawkish
• European economic sentiment fading
• German activity trackers are very weak
• China retail sales growth is negative
• China credit impulse is rolling over
• COT USD positioning is modestly long
• USD positioning is neutral on our tactical indicator
• AUD positioning is crowded
• A lot of tightening already priced in for RBNZ
• Current Trade Recommendations
• Model portfolio performance
• Model portfolio metrics since inception
• Authors
• Disclaimer

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