The Dollar’s hamlet moment

Hamlet moment

To AI, or not to AI — that really is the trade right now. The question isn’t whether the dollar goes up or down, but whether the market dares to believe that the AI boom still has legs strong enough to pull the global risk complex higher, or whether the next data drop will remind us all that the U.S. cycle is fading, allowing us to sell the dollar with conviction.

The reopening of the U.S. government has been a bittersweet elixir for the greenback. On one hand, risk is back on — stocks have caught a second wind, buybacks are flowing, and high-beta FX like AUD are catching the same tailwinds that power stocks. On the other hand, the same optimism that revives equity appetite also reawakens the yen’s old nemesis: carry. When risk levels rise, the mechanical gears of the USD/JPY carry trade start spinning again — cheap yen funding chasing higher U.S. dollar returns, pushing the pair higher almost reflexively.

Still, beneath the surface, the dollar’s reaction has been oddly neutral. It mirrors what we saw in early October during the first phase of the shutdown: traders happy to chase noise, but unwilling to plant a directional flag. The reopening narrative removes some downside growth fear, but it also reintroduces the spectre of real data — the kind that might show a labour market losing steam and front-end U.S. rates drifting lower.

That’s the kicker: so against the Euro, it certainly feels like another day of directionless chop. Until we see the hard numbers — NFP revisions, jobless claims, consumption data — there’s not much conviction to be had. Markets are pricing out the “no growth” risk, but probably underestimating how soft the labour story could get once those reports start rolling again. That sets up a slow-burn downside bias for the dollar into year-end.

High-beta currencies probably have a bit more juice left in the squeeze — think AUD, NZD, and even NOK, where risk-on and commodity sentiment intersect. But this isn’t the kind of event that shakes the G10 tree. Volatility is still subdued, and there’s no sense of crisis to force reallocation. The dollar stays rangebound, gently tilting toward the downside, while traders whisper about AI instead of inflation and watch USD/JPY trade like an algorithm chasing sunlight.

For now, the dollar’s Hamlet act continues — torn between the promise of capital inflows on AI exuberance and the inevitability of gravity from softer U.S. data. The play’s not over yet, but the tone of the next act depends on how quickly those economic scripts return to the stage.