Greenback stumbles as won surges – Policy coordination whisper gets louder

Sniffing out smoke

May’s been kind to the dollar so far, with U.S. and Chinese policymakers stepping back from the brink and giving risk assets a bit of breathing room. But don’t mistake tactical relief for trend change. This dollar rally is running on fumes—and the fundamentals say the legs are weak.

Yes, geopolitical calm buys some time. But growth and rate differentials are still drifting against the U.S. The Fed is staring down a decelerating economy, while rate trajectories in Europe and parts of Asia have started to stabilize or even firm. As U.S. growth converges lower, the dollar’s rate premium erodes—and with it, so does the flow support.

Worse still, the fiscal overhang is back in play. With unfunded tax cuts making their way through Congress, and another showdown brewing over U.S. debt credibility, the summer window could reopen the “Sell America” script.

Adding fuel to the fire, the U.S. dollar came under renewed pressure Thursday, dragged lower by a surging South Korean won amid fresh speculation that Washington is stealthily pursuing a weaker greenback. The catalyst? News that South Korean and U.S. officials quietly met last week to discuss the dollar-won exchange rate. That headline sparked a bout of dollar selling across Asia, unwinding the earlier optimism from this week’s U.S.-China tariff de-escalation.

The move in the won echoes the seismic shock felt in Taiwan’s currency earlier this month—a two-day vertical move that traders haven’t forgotten. In FX, memory is long and price action is louder than official denials. The tape doesn’t lie, and markets know how to sniff out smoke—especially when it smells like policy coordination.

Tonight’s data docket doesn’t look like a risk asset or Dollar-friendly gauntlet.

Let’s start with the tape: Bank of America’s card data nailed the March retail beat, and now it’s pointing squarely toward an April miss. Consumer spending is flatlining—up just 1% y/y and zero momentum m/m. The only spark came from panic-buying online electronics ahead of tariff hikes, and even that couldn’t offset the deadweight in airlines, apparel, and home improvement.

But the kicker isn’t the consumer—it’s the seasonal voodoo. The Census Bureau’s control group seasonal factor for April is more punitive than BofA’s, meaning a decent consumer print might still look like a dud on the official tape. BofA sees retail ex-autos and the GDP-proxy control group down 0.5% m/m. Misses across the board.

Now overlay that with Thursday’s PPI, which could light up core producer prices with fresh evidence of tariff pass-through. That’s stagflation 101. As we suggested on Tuesday, we liked long yen. Even if we backed into the trade on Wednesday for the wrong reason ( Weaker Asia FX tied to trade deals), I still like it heading into the weekend.

The view

The dollar is beginning to resemble a trapeze act without a safety net—and the audience is growing restless. While hard proof of a foreign investor exodus may take time to appear in the data, the narrative is already shifting. Call it the whiff of rotation—capital sniffing for the exits, quietly increasing FX hedges on U.S. assets, and preparing for what could be the next chapter of ‘Sell America.’

Last month’s policy scare was more than a tremor. With unfunded tax cuts being teased through Congress like a bad sequel to 2017, global money managers are already running the 2024-2025 playbook: deteriorating fiscal optics, a Fed cornered by inflation, and an overstretched U.S. exceptionalism trade. That doesn’t scream dollar upside—it screams exhaustion.

Enter the euro: unloved, liquid, and finally getting its fiscal act together. There’s enough real movement in Brussels to keep EUR/USD propped up near 1.1100, with scope to grind back toward the 1.13–1.15 region. It’s not just about what Europe’s doing—it’s what the U.S. isn’t. In FX, relative dysfunction is often more important than strength.

As for the yen, it’s still the quiet killer. If USD/JPY tests the 148 handle again, expect Tokyo desks to light up their sell buttons. Demand for defensive long-yen positioning will return fast, especially if the Bank of Japan nudges policy again. But the real kicker? A Fed easing cycle starting sooner than anyone has priced. All it takes is a couple more soft data prints and rate-cut timelines will collapse like a leveraged carry trade in a risk-off squall.