Global FX: Something’s Starting to Give

• The market is pricing in aggressive rate cuts by the Fed, but the data does not fully support this expectation.
• The dollar has performed well this week, and further upside is plausible due to low-grade US exceptionalism and underwhelming global economic data.
• The focus on the Fed and US rates is important, but the non-US side should not be overlooked, as there is a stark difference in initial conditions between the US and other G7 rate curves. The rate differentials could lead to a convergence with the US catching up to other rate curves, resulting in a volatile and high-impact dollar trend.

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