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.

While the idea of US growth re-acceleration is driving dollar strength, it's not the only story. Recent positive surprises in European PMI data and upgraded Chinese GDP forecasts suggest broader global growth resilience. This breadth should help cap the US dollar's rally and may promote weakness against other currencies.

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 recent global fixed income sell-off was not triggered by a single U.S. event but by a cascade of disparate actions from central banks and data releases in smaller economies like Australia, New Zealand, and Japan. This decentralized shift is an unusual dynamic for markets, leading to dollar weakness.

UK Sterling weakened despite news that personal income tax hikes might be avoided in the upcoming budget. This counterintuitive reaction, paired with rising Gilt yields, signals that investors are more concerned about the government's fiscal discipline and policy uncertainty than they are optimistic about potential short-term stimulus.

Sterling's reaction to potential UK budget options is "any news is bad news." Even less-damaging proposals cause weakness because the market understands any policy will result in fiscal tightening, forcing the Bank of England to react dovishly.

Canadian bond yields fell after the budget announcement, indicating the market had priced in a "risk premium" for a much larger fiscal stimulus package. The actual deficit, while large, fell short of these aggressive expectations, preventing further currency weakness.

When countries run large, structural government deficits, their policy options become limited. Historically, this state of 'fiscal dominance' leads to the implementation of capital controls and other financial frictions to prevent capital flight and manage the currency, increasing risks for investors.

The US dollar's rally has a natural ceiling because the government shutdown is withholding crucial growth and labor market data. Without this data, markets lack the conviction to push the dollar significantly higher, making the trend self-limiting.