If the dollar is set to rally from here, what does that mean for inflation? A short 🧵
Conventional wisdom holds that if the dollar rallies, US inflation will fall. A good narrative, as the US is a net importer, and imports become cheaper when the dollar strengthens
BUT...
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Conventional wisdom holds that if the dollar rallies, US inflation will fall. A good narrative, as the US is a net importer, and imports become cheaper when the dollar strengthens
BUT...
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...but note how in 2022 the dollar peaked right at the same time as core CPI peaked. Sometimes narratives don't work so well
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A much hotter than expected jobs number (517k) with the unemployment rate (3.4%) at 54-year lows was the catalyst #bigflip
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We also saw a significant improvement in ISM last week, from contractionary territory back into expansionary #bigflip
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Leaving the market with doubts over whether the Fed is as close to the end of its hiking cycle as was assumed
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The dollar will rally if the market is concerned the Fed is behind the curve (again) and has more work to do. The dollar rallying won't itself cool inflation fears, a higher terminal will
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I'll be discussing these issues in context at a free online workshop I'm hosting next Thursday. If this is of interest to you, please come along! taooftrading.com/jumpstart
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