Everyone is invited to the rally (except you, dollar)

The Fed’s shift away from its “higher for longer” messaging (and European central banks attempts at maintaining a hawkish stance) pushed relative interest rate expectations against the US dollar, leaving it weaker against nearly all major currencies this week. With inflation falling and activity softening in most major economies (including, more recently, the US), the “Goldilocks” narrative in markets appears stronger than ever and could continue to push the dollar lower in the short term. That said, the pace of the ongoing “everything rally” suggests to us that markets have largely discounted this benign outlook. As we set out in our latest Outlook, we expect the greenback to weaken a bit further against some major currencies over 2024 as a whole, but we think continued US economic (and equity market) outperformance will keep the dollar from falling significantly.