Dollar’s post-election gains depend on equities steadying

The Dollar’s first reaction to the election was to weaken, as a Democratic Congress made further tax cuts or stimulus unlikely and Treasuries rallied.

The AI rout then flipped it into a haven, though falling yields blunted the dollar’s appeal until Friday, when payrolls pushed December hike odds to roughly 80% and two-year yields higher. 

We still see December as the last hike, and the market’s pricing of one more beyond that looks excessive. Whether the dollar holds its gains depends on equities steadying.

If they do, a Congress unlikely to add fiscal stimulus over Trump’s veto argues against much further dollar upside.

Tuesday’s CPI is the first test of our one-and-done view, since a hot core print would make it hard to defend.