Investors are pushing back on predictions of a Fed rate hike in H1 2027. The primary reason is the belief that a new Fed chair would be reluctant to signal hikes just months before the US midterm elections, regardless of the economic rationale.
The Japanese Yen sold off despite a widely expected rate hike. The market interpreted the Bank of Japan's communication as dovish, reinforcing the view that the BOJ is falling behind the inflation curve, which paradoxically leads to yen selling now.
A significant downside miss in the US CPI report failed to move markets long-term. Investors quickly understood the deviation was due to a technical inability to collect data, anticipating a corrective "payback" in the next report, thus rendering the print as noise rather than signal.
The investment case for a stronger Swedish Krona (SEK) is not based on the Riksbank raising interest rates. Instead, the currency's strength is expected to come from positive domestic growth, fiscal policy, and regional economic spillovers, making rate differentials a secondary driver.
While a major sell-off in AI stocks would likely cause an initial "knee-jerk" strengthening of the US dollar due to risk aversion, the subsequent focus would shift to the US's twin deficits, leading to a multi-year dollar weakening trend once volatility subsides.