We believe that the R* for US is 3.25-3.5% and based upon this assumption, we see DXY as oversold at current levels. Markets are pricing in 230 bps of rate cut by end CY25 which to us looks stretched. Except the weak US NFP no of July (we believe it was more due to hurricane factor/auto plants closure), other economic indicators of health of US economy remains strong (retail sales/ ISM services). US economy’s growth exceptionalism over EU & China is likely to continue in near future because of continued fiscal support unlike EU & China. There might be some oversized overweight position in US assets but these are justified by growth & valuation multiples. Hence we believe DXY has made a short term bottom for now.
