Financial situation relaxes, hedge funds bullish on stock market but bearish on the US dollar💁
The recent drop of peak terminal rates from 5.44% to 5.37% despite a sticky labour market all speak to the market's confidence that the Fed is truly able to thread the needle and pull off a remarkable perfect soft-landing. Outside of buying stocks, the 'obvious' trade for hedge funds against this backdrop is a new short against the US$, as the combination of stronger growth, risk-on appetite are expected to exert continued downward pressure on the dollar. As a counterbalance, the majority of the QT withdrawals are expected to happen over the 2H of this year, with the liquidity impact yet to be determined and most probably under-appreciated at this time.
