Major central banks (Fed, ECB, BOJ) are raising rates not only because of persistent inflation but because their economies have proven surprisingly resilient. This strength gives them the confidence to tighten policy without immediately derailing growth, a crucial factor in their coordinated hawkish turn.
The Federal Reserve’s recent rate hikes should be viewed as a recalibration to new data, not a fundamental change in its long-term strategy. This nuanced view suggests that financial markets may have overestimated the total number of future rate hikes, creating a potential mispricing opportunity.
A key shift in currency dynamics is underway: the Fed now appears more sensitive to energy-driven inflation. This erodes a previous advantage for the euro, which had benefited from the ECB's more aggressive stance on energy prices, and strengthens the fundamental case for a firmer US dollar.