DXY is framed as more likely to rise than fall over the next stretch, even though fiat purchasing power keeps decaying over years; the call is for a short-term dollar bounce that can pressure BTC and possibly stocks before a later selloff. The setup leans on a Trump-first-term analog, a close link between DXY and the 2-year yield, and the idea that the Fed may still need one more hike. The 1990s are the key historical template: a 25 bp hike drove the dollar sharply higher, and the same kind of move is presented as plausible again. Energy is the other pressure point: inflation is not judged solved, XLE is already at new highs, and energy may keep climbing even if equities are near a top.
DXY is expected to move higher in the short term against consensus, even while fiat currencies keep losing purchasing power over multi-year horizons.
DXY is defined as USD versus other fiat currencies, not versus gold, BTC, or the stock market, so USD can weaken in real terms and still strengthen on DXY.
A late-2024 DXY call for a rise to about 110, then a 2025 collapse to new cycle lows, has played out so far: the dollar rallied, swept the mid-2022 high, then sold off to new lows.
The current DXY setup is being mapped to Trump's first term: after the 2016 election DXY spiked, topped in January 2017, bottomed in February 2018, then carved a low and trended higher.
The expected path is up into early 2025, then down through the rest of 2025, but the current year is said to be repeating the first-term pattern and already showing higher lows and higher highs.
DXY and the Bitcoin risk-on/risk-off measure usually move opposite each other, so a DXY rise has been a BTC headwind in 2014, 2022, and grudgingly 2018, with 2026 described as following that same setup.
DXY is expected to get a big bounce into year-end, creating one last headwind for BTC and perhaps one last headwind for the stock market.
The usual stock-market correction starting around August or September is still expected, possibly delayed until September or the next Fed meeting.
DXY is expected to look weak while still trending up, which is why the move may puzzle people.
DXY and the 2-year yield are described as moving together; when the 2-year rises, DXY can spike, and in 2021 both were rising.
The 2-year yield has bounced more from its lows than DXY has, and DXY is expected to follow it higher.
A further rate hike is expected because the rate-cutting cycle is already over and inflation is judged not yet tackled.
Rate hikes have already started in the Euro area, Japan, the UK, China, New Zealand, and Australia, and the U.S. is expected to have to start raising rates too.
The 1990s template matters: when the Fed first raised rates in the mid-1990s, the dollar fell for much of that period; when the Fed started lowering rates, the dollar rose.
A 25 bp Fed hike in the 1990s took the dollar from around 85 to around 96 and caused only a brief stock correction, not the end of the business cycle.
The Fed watch tool currently prices a hike before year-end, and if that hike happens the market expects the Fed to stay at 4% through 2027.
If the Fed hikes, DXY is expected to make a big move higher, potentially back to 105 or 106, and that move could arrive before the hike rather than only after it.
After a hike-driven rally, DXY could sell off again in the election year, similar to 2020 but for a different reason.
Energy is expected to keep rising because inflation is still not conquered and XLE is already making new highs.
In the last two major cycles, energy topped after stocks: the stock market topped in March 2000 and XLE in May 2001; the stock market topped in October 2007 and XLE in May 2008.
Because equities keep making new highs, energy prices or the energy sector are expected to make new highs before year-end.
If the Fed hikes, the final headwind for BTC and the stock market is expected before the end of the midterm year.
The dollar is judged more likely to go higher than lower, and that call is explicitly against consensus.
The current DXY view is that a start higher can happen before the rate hike, with the year-end bounce likely to be the key market inflection.
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