I can’t help but consider we have entered into one of those classic Soros-inspired, ultimately unsustainable, self-reinforcing cycles where larger U.S. deficits actually drive the dollar higher.

At a high level:

Larger deficits -> above trend growth -> sticky inflation -> rates remain elevated -> dollar inflows -> less competitive exports -> larger deficits

Fair or not, higher deficits and fiscal irresponsibility in the US is a much bigger problem everywhere else. As rates rise to compensate investors for the growing credit / devaluation risk of US government debt, investors will trade out of lower yielding currencies – many of whom import in dollars or have dollar-denominated debts – into dollars.

Ultimately, it is in basically all policy interests to stop this self-reinforcing dollar wrecking ball (both Trump and Biden want to rebuild / re-shore U.S. manufacturing while the EU, Japan, and China are