Despite hawkish Fed commentary, strong payrolls, and high inflation prints, the US dollar has not strengthened. This suggests aggressive rate hikes are already reflected in market prices, creating a conundrum for dollar bulls and questioning what new catalysts could drive the currency higher.
The Norwegian Krone (Nokia) is undergoing a structural transformation into a G10 high-yielder. This shift makes it less sensitive to energy price declines than in the past, as shorting a high-carry currency is more difficult. This fundamental change also justifies a trading premium to its fair value.
Emerging Market (EM) currencies have shown surprising resilience, with FX gains being strong enough to offset local bond market sell-offs and result in positive overall index returns. This strength persists despite challenging conditions like rising US real yields and high oil prices, which typically act as headwinds for EM assets.
In an environment of coordinated global central bank tightening led by the Fed, the most resilient G10 currencies are those with high yields. Currencies like the Norwegian Krone, British Sterling, and Australian Dollar are expected to outperform lower-yielding peers due to their attractive carry and better insulation from rising US yields.