Path through the dollar’s easing cycle
USD View: Cooling inflation and a softer labour market justify easing, but the Federal Reserve (Fed) is likely to wait until March. Near-term USD support persists as front-end yields hold and geopolitics sustain safe-haven demand. Beyond early 2026, narrowing yield differentials and fading US exceptionalism should pull USD index (DXY) lower.
Three Risks to the USD Cycle: Politics loom large. The succession to Jerome Powell tests Fed independence amid speculation around Donald Trump’s preferences. A credibility shock could lift term premia, revive QE or YCC debates, and weaken the USD. Japan’s steady normalisation further threatens yen-funded carry.
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