Amid the Fed’s insistence on the “higher for longer” narrative, it’s all too easy to cite the greenback’s resilience in the course of lampooning the various de-dollarization narratives which stormed the financial front pages last year after the West seized Russia’s reserves.

We should avoid that. And not because those narratives don’t deserve to be lampooned (“Eastern Powers“!), but rather because the dollar’s near- and even medium-term performance (i.e., relative strength and weakness) is in many respects a separate story.

There’s overlap, of course. But note that it’s often easier to fashion a case for de-dollarization amid dollar strength than weakness. So, for example, if I’m an emerging market policymaker and the Fed is tightening without an obvious domestic macro rationale and without regard for the collateral damage abroad (e.g., mid-2018), I might argue that my economy and financial system needs to be de-risked from US monetary policy, at least at the margins and where possible. I might argue the same if I’m a geopolitical adversary and I suspect the US might be keeping rates higher than they otherwise would be in an effort to discourage capital from flowing to my economy (assuming Treasury hasn’t just decreed such flows illegal).

The flip side can be true too, by the way. If the US is pursuing ultra-accommodative monetary policy when there’s no domestic emergency, that can create distortions that outweigh the “benefits” of hot money flows to EMs. Ben Bernanke took some heat for the soaring food prices which precipitated social unrest in some locales a dozen years ago, for example.

Whatever the case, it’s best to separate run-of-the-mill FX discussions from broader, big-picture narratives lest we should find ourselves trafficking in non sequiturs week in, week out, or getting dragged kicking and screaming into grand geopolitical debates at every turn.

Currently, the dollar is riding the longest streak of weekly gains in over a year. The index (Bloomberg’s too) is sitting at the highest levels since early June.

Plainly, this doesn’t have anything to do with the fate of de-dollarization narratives. This is about near-term monetary policy considerations, August’s reals-led Treasury selloff and, relatedly, rate differentials. 10-year US reals were 1.68% on August 1. They’re 1.92% now.

Despite very high odds that Fed hikes are either done or one hike away from being done, material downside for the dollar needs some other catalyst. “We have been stressing that substantial dollar downside will likely require better growth in Europe and China alongside continued disinflation pressures in the US, and the path to that combination has been narrowing again,” Goldman’s Kamakshya Trivedi said. The figure below illustrates the point.

Note that the US economy isn’t “the cleanest dirty shirt,” as the saying goes. The US economy is just a clean shirt (if you don’t count the red wine stain left over from 9-handle CPI). With Germany and China headed into recession, it’s going to take more than “We might be done hiking” from the Fed to undercut the dollar’s appeal.

In that regard, there’s considerable risk (i.e., upside risk) for the greenback in next week’s data deluge. “Given the increased focus on the growth data, any upside surprises, especially the NFP report, but also JOLTS and ISM manufacturing, could push September [FOMC] pricing higher, in addition to any beat on PCE inflation on August 31 or CPI inflation on September 13,” Goldman’s Trivedi went on.

With allowances for the common sense assessment that the run of gains illustrated above virtually screams for an interruption, I think the setup is asymmetrical barring a large downside payrolls print. Obviously, a big jobs miss that suggests the US labor market might’ve finally seen a so-called “Wile E. Coyote moment” would be a game-changer and could lead to considerable dollar downside, but short of that, and absent evidence that Beijing is serious about stimulus, it’s hard to see where the impetus to sell the dollar will come from. There’s only so hawkish the ECB can be with the German economy teetering.

The yen is a wild card in all of this. “Even without a further rise in US yields from current levels, as long as the BoJ remains far from hiking rates and equities stay reasonably well supported, the yen should continue to trend weaker — especially with our nearer-term depreciation bias on the yuan,” Trivedi remarked, suggesting the currency will have a hard time finding its footing “even if” Japanese authorities intervene.

In any event, consider the above off-the-cuff, weekend musings. I felt compelled to weigh in on recent dollar strength. This is what came out.

In closing, I should emphasize that the Fed could easily be co-opted into geopolitical matters over time if the US decides high rates are a useful tool for starving “certain” countries of capital. But that’s not what’s driving US monetary policy right now. Jerome Powell is concerned about a still-hot economy and a still-tight labor market, which he worries pose risks to the inflation fight.