Executive Summary
The US dollar trades at DXY ~99.0, temporarily buoyed by safe-haven demand following the US-Iran war launched February 28 but structurally weakened by a closing US-ROW growth differential, a stagflationary data mix (core PCE 3.0% YoY alongside NFP of -92K), and the Fed's paralysis at 3.50–3.75%. DXY has rallied ~3% from its pre-war 96 handle to touch 99.68 — its highest since late January — but remains well below its 200-day MA (~101–103) and down approximately 8–10% over the past year. The US exceptionalism narrative that powered USD through 2024 has been decisively undermined: S&P Global's composite PMI differential between the US and Eurozone has collapsed to zero for the first time since April 2024, while MSCI ex-US equities outperformed the S&P 500 by more than 10 percentage points YTD (pre-war). Aggregate CFTC net speculative positioning reached -$22.8B — the most bearish since March 2021 — before Iran-war short-covering trimmed it to -$19.6B. Our stance is tactically neutral (safe-haven bid offsets structural bearishness) but strategically bearish as twin deficits at ~8.8% of GDP, the loss of all AAA sovereign ratings, and the approaching Powell-to-Warsh Fed Chair transition compound with fading rate differentials to resume the cyclical USD downtrend once geopolitical risk premia dissipate. The March 18 FOMC meeting with fresh dot plot is the next decisive catalyst.