USD: The Truths Hurt

Treść źródłowa

In this note, I’ll discuss:The USD bounce - which I see as a lull that led to a position unwind.Sabotaging the USD revisited - I review the bear case for the USD.Tariffs and Immigration policy - I view these as brand damage and a productivity hit.EMFX - dangerously low risk premium, but frequent TACO opportunities.Thanks for reading EM FX Macro! Subscribe for free to receive new posts and support my work.The Eye of the StormAfter a month or more of marinating in benign US data and falling tariff uncertainty, markets were given a dose of reality at the beginning of this month, first from record payroll revisions, then from the firing of the head of the Bureau of Labor Statistics. The resilience in hiring was revised away, and that inconvenient truth was too much for the President, who prefers his truths with more CAPS.In July, we saw speculative short USD positions liquidated, and a US equity market, led by tech, rising to new highs. As damaging tariff uncertainty appeared to be sliding towards resolution, the prevailing USD bearish narrative was fraying. For some, the pre-inauguration views were being dusted off. The core of that was higher for longer US rates, with tariffs seen as a US consumption tax hike plus a global growth hit delivered asymmetrically towards the rest of the world. US fiscal stimulus (via the post-inauguration tax bill) would support US growth expectations, and the Fed would keep the USD as a mid-high yielder among DMs.In a sense, the BLS episode encapsulates the era we're navigating. Beneath each brief period of calm lies another potential shock: poli…