Why the Dollar Refuses to Roll Over
A few forces are aligning perfectly for King Dollar:
- Tariff-driven inflation: Core CPI stuck above 4%, Fed on hold, real yields a magnet
- U.S. exceptionalism: Growth north of 2.5%, earnings resilient, capital inflows accelerating
- Global risk aversion: Trade frictions, EM debt worries sending money to safety
This isn't speculative froth. Positioning data shows specs still net long dollar, but not extremely so — there's room to run further.
Major Pairs: Clear Directional Bias
- EURUSD: Grinding toward parity, ECB cutting while Fed sits pat
- USDJPY: Pushing above 155, carry trade back in force
- GBPUSD: Trending toward 1.20, BOE cuts priced aggressively
These aren't choppy ranges anymore — they're trending moves with momentum. The dollar bid is relentless on dips.
EM Currencies: Real Pain and Opportunity
EM currencies are getting absolutely hammered. MXN has cracked 20, BRL pushing past 6, ZAR and TRY in freefall — classic dollar strength casualties.
China's yuan is under heavy management, but offshore USD/CNY is testing highs. Any further tariff escalation would force more depreciation.
The setup screams selective shorts: USD vs high-beta EM pairs offer massive carry and trend potential. Volatility is elevated, but risk/reward skews heavily directional.
Bottom Line
The dollar dilemma isn't that it's too strong — it's that the rest of the world is too weak in comparison. Tariff friction, yield differentials, and growth gaps are keeping DXY elevated.
This environment is a forex trader's dream: clear momentum, decent carry, and low probability of sharp reversal while the Fed stays restrictive.
The trend remains your friend. Don't fight the dollar until the data forces it.