๐ Schroders: The Dollar Smile Theory in 2026's New Market Regime
Schroders revisits the 'dollar smile' framework, where the US dollar strengthens both during strong US growth and in risk-off periods, and concludes it remains valid as the Fed holds rates at 3.50%-3.75% against global growth of just 3.1%. The firm points to liquidity conditions and safe-haven demand, alongside rate trajectory, as key drivers to watch rather than growth differentials alone.
Why it matters: Investors hedging currency exposure should track Fed policy stance and global growth divergence as the more reliable signals for dollar direction in the current regime.
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