This week’s most important market story was doubtlessly the dollar, which fell the most in eight months to the lowest since April of last year.

The greenback’s decline was, of course, a function of this week’s most important macro story — namely, favorable inflation updates out of the US, where the pace of consumer price growth slowed more than expected and producer prices slipped to the brink of deflation.

A weaker dollar is conducive to buoyant risk assets and easier financial conditions. Sure enough, pretty much every asset on the planet rallied over the course of the week, including and especially stocks.

The rolling five-day drawdown was very pronounced, and acted like Zofran for risk sentiment, which soured a bit the previous week.

So, where to now for the greenback? As usual, it’s complicated. But perhaps not as complicated as it usually is.

The selloff can continue, Goldman reckons, “because the same factors that weighed on [this CPI report] look likely to be softer still in the coming months,” the bank’s Kamakshya Trivedi and Michael Cahill wrote, noting that broad dollar underperformance makes complete sense in the current environment.

Dovish policy shocks lead to dollar weakness and also to lower US reals, which tend to bolster equities, EM FX (which had its second-best week of 2023) and high-beta G10.

But it won’t likely be a smooth glide lower for the dollar, even if US inflation continues to recede steadily, unimpeded (which it probably won’t after July, by the way, even if core does manage to trundle in the right direction into year-end).

“Despite the weaker near-term inflation outlook, US policymakers will still need to be vigilant because inflation remains above target and the economy has been firmer than Fed officials expected,” Trivedi and Cahill went on to say, flagging the NFIB and University of Michigan surveys.

Although the percentage of firms raising prices in the NFIB poll was the lowest in 27 months+, it was still “very inflationary,” as NFIB Chief Economist Bill Dunkelberg put it, and inflation expectations rose in the Michigan poll, which found headline consumer sentiment jumping to the highest since September of 2021. Those surveys, Goldman said, are “reminders that underlying momentum remains strong, and that could have inflationary implications.”

And then there’s the yuan. “For the broad dollar to move much lower, CNY will need to participate,” Trivedi and Cahill wrote. “But [Chinese] policymakers are dealing with low inflation of a different order of magnitude and are still in easing mode.”