Dollar Strength and Trade - Markets initially worried about an unnatural correlation between the dollar and risk, particularly after "Liberation Day" [1] - The US has experienced less growth impact from tariffs than initially feared because countries have not retaliated as much as expected [2] - Small, open, export-oriented economies are expected to be most pressured by tariffs [2] - Tariffs are now seen as more positive for the dollar than previously [3] US Economic Outlook - The dollar experienced front-loaded weakness in the first half of the year, which is unlikely to continue [3] - There was an asymmetric reaction function where bad news was very bad for the dollar, but good news wasn't as good [4] - Deficit expansion isn't as bad as initially feared, and Section 899 has been removed, potentially removing a premium priced into the dollar [5] - US administration policies are hoped to be growth-positive, which would be more positive for the dollar [14] Fed Policy and Dollar Impact - The market is pricing in a premium related to the potential removal of Fed Chair Powell [6] - Removing Powell is unambiguously dollar negative, as it implies a commitment to devalue the dollar by 2% per year [7] - The market is aware that even if Powell is removed, the other Fed governors may not follow suit if the data doesn't support it [8] Euro and Global Growth - There is no good alternative to the dollar, as Europe lacks a strong growth story [10] - Optimism priced into fiscal policy has largely disappeared, and tariffs are expected to have a more negative impact on growth than fiscal stimulus in 2026 [10] - Euro dollar is capped at 120, but flows haven't broadly moved away from the US [11] - Inflation divergence is expected between the US and Europe, with the US experiencing a price level adjustment from tariffs, tighter immigration, and the dollar decline in the first half [16]