Anything but the Dollar

Stagecraft

This week’s Fed meeting is little more than stagecraft. A 25bp trim is in the bag, with two more this year and another pair next year, pointing toward 3–3.25%. The dot plot will flash across the terminals, but in FX we don’t trade the light show — we trade the tape. And the tape is payroll. If the labour market cracks harder, a 50bp cut remains the joker in Powell’s deck.

But this Fed is no longer a fortress — it’s a weather vane, spun by political gusts rather than economic bearings. What the White House wants heading into the mid-term election cycle is obvious: cheaper mortgages to juice housing, and stoked consumer sentiment to fuel voter optimism. With payroll revisions revealing the Fed is already 50bp late, the central bank has slipped into campaign choreography. The market knows it — the question isn’t if the Fed cuts, it’s how quickly politics pushes them deeper.

That’s why the story has changed. Borrowing a phrase from Bank of America strategist Michael Hartnett, the era of “Anything But Bonds” is over. The new trend is “Anything But the Dollar.”

For me, the 2025 scoreboard already shows the story on my trading blotter: gold has risen nearly 40%, stocks are doing well, Bitcoin is signalling, while the dollar has fallen 10%. Global capital is no longer revolving around U.S. exceptionalism; it’s gaining new focus in Europe, Japan, and Asia, where fiscal expansion is breaking old deflationary patterns.

Gold has transformed from whisper trade to battle cry. Record inflows mark the shift from hedge to declaration: protection not just from inflation but from political engineering and the erosion of the dollar’s reserve crown. Crypto, though volatile, is acting as the high-beta proxy for the same distrust.

For FX desks, the message is clear. The dollar is no longer the anchor; it’s becoming the driftwood. Every weak payroll print, every mortgage refi headline, every hint of White House pressure into the midterms chips away at the mooring. The compass has already swung toward ABD, and traders are repositioning their books as though the tide has turned.

And in markets, once the tide turns, it doesn’t wait for the captain’s speech — especially heading into a volatile mid-term election year.

Labour’s warning shot and the case for a 50bp cut in October

The Fed’s dashboard is beginning to light up like a cockpit when turbulence approaches—warning signals across the labor market are flashing red, even as inflation refuses to roll over. For traders, the playbook is simple: when jobs are wobbling and growth looks fragile, the central bank reaches for the rate-cut lever, and the dollar loses altitude. October, in my view, is shaping into the kind of meeting where a half-point trim could be justified, and staying short the greenback makes sense if you’re already positioned that way.

The consumer survey out of New York laid it bare: Americans are losing faith in their ability to find work. Expectations of landing a job over the next three months have cratered to just 44.9%—worse than the pandemic trough and sharply below the optimism seen after last year’s emergency 50bp cut. The picture is uneven across the country: the West and Northeast are bleeding confidence, while the South still shows resilience. But the more telling split is by income. Sub-$50k workers, those on the front lines of any slowdown and most exposed to automation, are bracing for pink slips.

This isn’t noise. It mirrors the official payroll revisions, which stripped nearly a million jobs out of the record books, recasting the last year as a period of paltry hiring. Average monthly job growth, once thought steady, has been halved. Add in jobless claims spiking to their highest in four years, and the cracks in the wall are becoming structural.

Yes, core CPI is running hot. The August print jumped to a 4.2% annualized clip, with prices for essentials like food, gas, and rents chewing into household budgets. On paper, this would argue for restraint. But the Fed’s dual mandate means jobs matter just as much as prices, and when unemployment drifts above the comfort zone, policy tilts dovish. Powell can point to tariffs and supply chain snarls as temporary drivers, but he can’t ignore the risk that falling hiring turns into mass layoffs.

We are edging toward that precarious point where companies stop hiring and start cutting. With unemployment already at 4.3%, north of the Fed’s definition of “full employment,” the margin for error is razor-thin. If the central bank waits too long, the glide path could become a stall. That’s why October looms so large. A 25bp cut may no longer be enough to shore up confidence—policy could need a shock dose, the kind of 50bp move that signals urgency.

For FX desks, the narrative is straightforward. A Fed forced into front-loading cuts weakens the dollar’s carry appeal. Staying short of the dollar here is less about chasing the first cut and more about anticipating the pivot’s velocity. The risk isn’t that the Fed cuts too little—it’s that they cut too late, and then cut too much.