Chapters
The Fast view and introduction
The fast view
- Full dollar cycles typically last 18 years – much longer than business, credit or equity cycles.
- Their longevity stems from four reinforcing forces: trade and geopolitical shifts, interest rate and growth differentials, cross-border investment flows, and FX intervention.
- Across three full cycles since 1970, dollar inertia has only reversed when all four forces flipped in unison – usually within a tight two–three year window.
- A second Trump presidency could trigger such a convergence. Tariffs and fiscal expansion may widen twin deficits and drag on growth, while recoveries in China, Europe and Japan may narrow rate differentials.
- With investment flows starting to shift and coordinated FX action being discussed, conditions are aligning for the first durable dollar downcycle since 2002.
- The difficulty with a dollar down cycle is not what investors need to do, usually increasing exposure to non-US assets, but rather about recognising a prolonged down cycle is underway.
Introduction
Are we in a dollar bear market? There are good reasons to think so. Yet turning points in dollar cycles are rarely obvious. They defy easy prediction, often emerging only after macro, financial and geopolitical forces have already begun to shift.
That said, the convergence of those forces may be underway. Structural overvaluation, fading yield advantages, and tentative signs of capital reallocation all point to a possible turning point. Add to that a renewed Trump shock – tariffs, fiscal largesse, Fed pressure – and the ingredients for reversal become clearer.
We explore how and why those forces may be shifting, and what it would take to confirm a genuine turning point. The paper outlines the structural foundations of dollar inertia, the historical triggers that have broken it, and the emerging parallels that suggest this cycle may be nearing its end.
