Dollar strength is the talk of the proverbial town. Perhaps you noticed.

Thanks to a confluence of factors and overlapping dynamics, the greenback notched a virtually uninterrupted streak of gains on the way to a relentless summer rally reminiscent of the “dollar wrecking ball” backdrop that prevailed late last summer.

These days, everything’s good for the dollar it seems. Oil’s up? Fine. The dollar’s a petrocurrency now. Long-dated US bonds are more risky now? Fine. The dollar’s positively correlated to the term premium. The macro regime has shifted durably such that rates will need to be structurally higher to keep the economy in balance? Fine. Higher real rates are dollar positive. Inflation is stubborn? Fine again. Stubborn inflation means tighter Fed policy and that’s a boon to the dollar. Higher-for-longer is destined to end in a hard landing? That’s fine too. The dollar will benefit from a safe-haven bid.

And it just goes on and on and on. Just like the dollar rally, which is at 11 weeks and counting. (“Look, right across the board, eleven, eleven, eleven…”)

Not even evidence of acute government dysfunction is enough to derail the dollar. Partisan rancor has never been worse in D.C. (or at least not in modernity) and there are very real concerns about the durability of America’s institutions. Not real enough to dislodge the “US exceptionalism” narrative, though. Or at least not as long as the US economy is the only clean shirt in a world of dirty ones.

Could the rally keep going? In a word: “Yes.” In a lot more words: “The dollar looks a bit stretched, especially ahead of some likely growth wobbles but [last] week also offered a clear look at the forces supporting the dollar, and the potential ‘potholes’ abroad that could keep the dollar elevated for some time to come.”

The quote is from Goldman’s Kamakshya Trivedi, who went on to offer a trio of “clear risks that could lead the dollar to break free and potentially even approach last year’s peak.” Here are those three upside risks, as expounded by Trivedi, presented without further comment.

1. The recent tightening in financial conditions will weigh even further on stagnating Euro area growth, and there are now some signs that the familiar Euro area credit concerns are starting to re-emerge, with the BTP-Bund spread starting to push higher and the case for more restrictive ECB policy looking weaker by the day.
2. The recent move in the Dollar came despite a remarkably stable anchor in CNY. But, there is a limit to that stability. The CNY real TWI has now appreciated by around 4% from the summer lows, even as officials are trying to ease the policy stance. If officials begin to grow concerned that the Dollar move could prove more durable, they might be tempted to loosen the anchor a bit, potentially putting even more upward pressure on the broad Dollar in the process. While certainly not our base case, the longer the Dollar move extends — and the more it broadens — the more this risk grows.
3. Although we expect a pothole in US growth ahead, this is not necessarily as clearly negative for the Dollar as it might be for other US assets even if investors worry that the downturn is something more sinister. But it is a narrow path for the Dollar to fall because of lower US expectations. There is some room for that in the near-term if the market starts to put earlier Fed cuts back onto the table, but ultimately this is probably not a stable route to Dollar downside, and could even be a source of support if it weighs heavily on risk sentiment. All in all, we think the Dollar can resist these break-out forces a little longer, but even the medium-term outlook carries two-way risks, as recent market shifts have made clear.