=== MARKET IMPLICATIONS === - Currency Markets: The primary impact will be on foreign exchange rates. The US being an "easy money outlier" implies relative USD weakness against a basket of other developed market currencies whose central banks are holding or tightening. This could lead to appreciation in EUR, GBP, AUD, CAD, and JPY against the USD. - Bond Markets: Short-term rates abroad are noted as "priced in" for the divergence, but the US short-rate market might be "underpriced" for easier policy. This could imply further downward pressure on US short-term yields relative to other developed markets. - Equity Markets: US equities might benefit from a relatively looser monetary policy environment, potentially supporting valuations, especially for growth-oriented sectors. Conversely, a weaker USD could boost earnings for US multinational corporations. Other developed market equities might face headwinds from tighter policy or benefit from stronger local currencies. - Capital Flows: Expect capital to potentially flow out of the US into other developed markets seeking higher relative yields or stronger currency appreciation, or into US assets that benefit from a weaker dollar.
| Ticker | Direction | Speaker | Thesis | Time |
|---|---|---|---|---|
| LONG |
Bob Elliott
Substack author, Nonconsensus |
The ECB has already cut 200bps to 2%, but is expected to hold policy steady due to decent growth, tight labor markets (multi-decade lows), and subdued inflation, showing little urgency to ease further. In contrast, the US Fed is expected to aggressively argue for easier policy, making the US an "easy money outlier." The divergence between a cautious, holding ECB and a dovish Fed implies relative strength for the Euro against the US Dollar. The author explicitly states exchange rates are where divergences will be reflected. Long EUR/USD to capitalize on the relative tightening/holding stance of the ECB versus the easing stance of the Fed. The ECB could surprise with further cuts if economic conditions deteriorate rapidly, or the Fed could be less dovish than anticipated, reducing the divergence. | — | |
| LONG |
Bob Elliott
Substack author, Nonconsensus |
The BoE is expected to hold policy steady due to annoyingly elevated inflation and strong recent survey data, despite weakening labor markets. This cautious stance contrasts with the Fed's anticipated aggressive push for easier policy. The relative hawkishness/holding of the BoE compared to the dovish Fed creates an opportunity for GBP appreciation against the USD. Long GBP/USD to benefit from the BoE's cautious stance and the Fed's expected dovishness. UK inflation could fall faster than expected, prompting the BoE to cut rates more aggressively, or the Fed could pivot to a less dovish stance. | — | |
| LONG |
Bob Elliott
Substack author, Nonconsensus |
The RBA became the first major central bank to hike rates in 2026, forced by a "swift reacceleration" of the Aussie economy and inflation bouncing to near 4%. This explicit tightening contrasts sharply with the Fed's expected easy money policy. The RBA's active tightening cycle, driven by a hot economy, provides a strong fundamental tailwind for the Australian Dollar, especially when juxtaposed with a dovish US Fed. Long AUD/USD to capture the positive carry and capital appreciation from the RBA's tightening cycle relative to the Fed's easing. Australian economic reacceleration could prove temporary, leading the RBA to reverse course, or global risk sentiment could deteriorate, weighing on commodity-linked currencies like AUD. | — | |
| SHORT |
Bob Elliott
Substack author, Nonconsensus |
The BoJ "seems forced to hike in response to the FX pressures," implying a move towards tightening. This, combined with the Fed aggressively arguing for easier policy, creates a significant policy divergence. A tightening BoJ (leading to JPY strength) and an easing Fed (leading to USD weakness) creates a strong fundamental case for USD/JPY depreciation. Short USD/JPY to capitalize on the relative tightening of the BoJ and the easing of the Fed. The BoJ's hike could be a "one-and-done" or less impactful than expected, or the Fed's easing could be less aggressive, reducing the divergence. Geopolitical events could also drive safe-haven flows into USD. | — |