The United States Dollar, LFG Daily - July 7th, 2026
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The dollar has done quite well this year, rising 5% since late January. To some extent, that’s just a partial recovery from a 2025 pullback, but gains have been good. What’s happened has been a mix of somewhat related events combining to support the dollar.
The dollar is valued in relation to other currencies, which in turn tend to move on changes in rate expectations. In this case, the dollar moved from pricing in two rate cuts to two rate hikes, which is quite the change for a few months’ work. That shift reflects a few things, such as fading recession odds and sticky inflation.
As the year has gone on, Middle East tensions lifted oil, causing further inflation concerns. Further, new Fed chair Warsh performed the usual ritual of emphasizing price stability, which spiked rate hike odds. As is common in modern high-leverage markets, all this spiked rate hike odds quite high.
Why should we care about the dollar? The price of the dollar is closely related to relative rate expectations, and together they help determine what assets look attractive. Capital will go where it’s treated best, and a cheaper dollar generally makes US assets look more attractive, at least as long as it’s not dropping too rapidly.
The cause of dollar weakness or strength matters, though, and is only part of the equation. If the dollar is going up because the economy is doing relatively well and US companies (say, semiconductors and AI) are outperforming world stocks, that’s not so bad. Even so, that tech party has been going on for a while, and US stock performance is optimistically middle of the pack year-to-date, as dollar gains bite.
Dollar strength is where we’ve been, but where are we headed? Of course, the market tries to value assets accurately and quickly, but I’d say the causes for dollar strength have been fading. We’ve rapidly shifted from two rate hikes down to one, as Warsh calmed markets and oil has faded. Inflation remains sticky, but there’s good reason to believe the worst is behind us.
If the dollar fades, that should help risk assets like stocks keep up their performance. Which ones to buy is potentially complicated. though. Generally, foreign stocks, multinational companies, and exporters can do well, as a weaker dollar is good for at least making their businesses look better. The details can be rough, though. For instance, how risky are Korean chip stocks after a big run?
It’s worth mentioning that profligate fiscal spending hasn’t particularly slowed, which represents another brake on dollar gains. The administration has chosen a ‘run it hot’ stance, which involves massive deficit spending in excess of 6% of GDP. That desire to flood the world with dollars naturally weakens its value.
Ultimately, the dollar has been strong for the bulk of this year, which has been a bit of a brake on US stocks. If rate hikes get priced out and the dollar weakens, that can be a further boost for the stock market. We can still have specific issues, such as the recent semiconductor volatility, but a weaker dollar should help us to profitably invest in stock markets, going forward.
ISM Services PMI was 54, as expected. Great number, probably influenced by World Cup activity. Prices Paid got better, as did Employment, but New Orders faded.
PMI composite revision was 51.9 vs. the first print of 52.2, with both Services and Manufacturing slowing slightly. Still expansionary and not a big deal.
Samsung was -7% despite strong preliminary results that insufficiently beat investor expectations. In turn, the Kospi index was -5% and US semiconductors are indicated down -3%.
Rivian (RIVN) was -8% after announcing strong sales guidance but are selling an additional 75M shares.
SpaceX (SPCX) joins the Nasdaq 100 today. Note that weightings are based on the free float of the stock, so it will be a sub-1% position despite the $2T market cap.
ADP Weekly Jobs today.
Bottom line: Memory fears are the most recent tech headline
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