Ahead of this week’s crucial US CPI report, and with America’s jobs market and service sector both exhibiting a familiar penchant for stubborn resilience, I wanted to quickly mention the dollar.

Treasury yields have obviously rebounded smartly off YTD (or multi-year, depending) lows reached in the wake of the Fed’s 50bps rate cut. Some of that’s breakevens (think the war-driven surge in crude), but it’s reals too. The bond selloff accelerated late last week amid an ISM services overshoot and, of course, a barnburner jobs report.

That lent support to the dollar, which is coming off its best week of 2024, a better than 2% rally which erased weeks of slippage.

That’s a reflection of the data, yes, but also of the implications for relative monetary policy.

The ECB’s apparently going to cut rates again at this month’s meeting, the Bank of England will surely cut again this year and the Bank of Japan’s now under political pressure to hold off on additional rate hikes. And then there’s China, where officials are struggling to ward off deflation with a package of easing measures, including cuts to every policy rate that counts, and even some that don’t.

Although the Fed “plans” (with the scare quotes to placate Jerome Powell, who insists the dot plot not be called a “plan”) to cut rates by another 50bps across the November and December policy meetings, another jobs report like September’s, to say nothing of a hypothetical inflation re-heat, would challenge the best-laid plans o’ doves an’ men.

Last week, Mohamed El-Erian underscored the point. America, he wrote, “is maintaining its ‘economic exceptionalism’ at a time when the other two large economic regions with systemic global importance, China and Europe, continue to struggle.” The bottom line: The “US exceptionalism” trade just won’t go away, which means the dollar rally since mid-2021 can’t completely retrace.

This is problematic on some interpretations and vectors. Dollar strength sounds good to Americans from a kind of rah-rah perspective, but it can be onerous for global growth and liquidity. “The two previous multi-year dollar rallies of the last 50 years (1980-1985 and 1995-2001) were completely reversed after the Fed started cutting rates and investors fretted about the dollar’s exceedingly high valuation,” SocGen’s Kit Juckes wrote Tuesday, before quickly adding that although the current multi-year dollar rally “marginally reversed,” the greenback’s “already… rallying again.”

The figures above are telling. On the left is Japanese-buying of US bonds. It’s the same chart Bloomberg used on Monday. On the right is options positioning (so, bearish near-term on both the common currency and sterling, and I’d quickly note that new Japanese PM Shigeru Ishiba’s remarks on monetary policy last week were an excuse for traders to reengage in bearish yen expressions).

Plainly, you’re not going to get sustained dollar weakness when i) the US economy’s outperforming, ii) that economic outperformance threatens to prevent the Fed from cutting rates as deeply or quickly as they otherwise might, and iii) the only financial assets anyone wants are US financial assets, whether it’s 10s yielding 4% again or shares of the country’s “Magnificent” tech monopolies.

“[The] unravelling yen carry trade and the start of Fed easing ought to deliver a weaker dollar and less unbalanced global economy, but investors are already buying the dip!” Juckes went on. “I’m certain that a weaker dollar would help reduce some of the imbalances in the global economy, but if investors have so little confidence in their domestic policies and asset markets that they are already returning to the US, how does it happen?”