Gundlach: The Fed versus the Dollar

We’re in a funny kind of circular logic world, where, since the Fed acknowledged a strong dollar could become a variable, that meant the odds of the Fed increasing interest rates declined. One of the reasons the dollar stopped strengthening is the consequence of the Fed mentioning its strength has been problematic, meaning there's less likelihood of them tightening. But the reason the dollar was getting so strong was that the Fed was talking about tightening.

You see the circular logic: The dollar is strong, so they can't tighten. So the dollar weakens, so they can tighten. So the dollar strengthens, so they can't tighten, so the dollar weakens, so they can tighten. And around we go. That’s where we are right now.

Great encapsulation of one of the stranger arguments in finance – the dollar is gaining, therefore, the Fed can’t hike, therefore the dollar shouldn’t gain. But it is.

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