Analysts expect a continued dollar-centric market where most G10 currencies move in tandem against the dollar, keeping dollar correlations high. However, they are bearish on cross-correlations (e.g., involving Sterling and Euro), anticipating greater divergence between non-dollar currencies, which presents an opportunity for investors.

The success of the current EM FX carry trade isn't driven by wide interest rate differentials, which are not historically high. Instead, the strategy is performing well because a resilient global growth environment is suppressing currency volatility, making it profitable to hold high-yielding currencies against low-yielders.

Stablecoin market growth isn't driven by a single factor. Analysis reveals it has been fastest during periods when both Bitcoin prices and the broad US dollar index are appreciating simultaneously. This dual correlation points to a specific macro environment that is most conducive to stablecoin adoption.

Despite a packed calendar of central bank decisions and key data releases, broad FX volatility is hovering near five-year lows. This suggests investors are underpricing potential market moves, and current options pricing for events like U.S. payrolls may be insufficient to cover a significant data surprise.

A historical review places 2026 in the second-lowest decile for central bank rate activity (hikes/cuts). This data strongly suggests a contained FX volatility environment, as significant vol spikes historically occur only during periods of extremely high or low central bank intervention.

To extend the solvency of U.S. debt, create a one-to-one stablecoin backed by treasuries. This would grant global citizens, particularly in countries with unstable currencies, a direct way to save in a dollar-denominated asset. This new demand could lengthen the runway for U.S. fiscal policy.

Stablecoin adoption by U.S. entities merely shifts existing dollar assets from bank deposits or money market funds. True new demand for the U.S. dollar only materializes when foreign households or corporates convert their local currencies into dollar-backed stablecoins for the first time, creating a net FX conversion.

For hundreds of millions in developing nations, stablecoins are not an investment vehicle but a capital preservation tool. Their core value is providing a simple hedge against high-inflation local currencies by pegging to the USD, a use case that far outweighs the desire for interest yield in those markets.

For stablecoin companies like Tether seeking legitimacy in the US market, the simplest path is to back their assets with US treasuries. This aligns their interests with the US government, turning a potential adversary into a welcome buyer of national debt, even if it means lower returns compared to riskier assets.