The Dollar Is Screaming. Why Isn’t Anyone Listening?

The Dollar’s Power Move

And the quiet macro risk no one’s pricing in.

If you’re watching markets this week and feeling like something doesn’t add up—you’re not alone.

The U.S. dollar is clocking its strongest weekly gains of 2025, surging against the euro, yen, and a basket of EM currencies. It’s not a small technical bounce. It’s being driven by real policy shifts—namely, the new U.S.–EU trade deal greenlit over the weekend, enabling 15% tariffs and energy export facilitation, giving the U.S. an even stronger hand.

Yet equities are partying like this is a liquidity wave. The Nasdaq hit all-time highs, meme stocks are back on fire, and retail traders are pushing options volume to nosebleed levels.

So what’s going on? Because historically, a strong dollar:

• Crimps multinational earnings

• Tightens financial conditions

• Signals risk-off in global markets

  But this week? It’s being treated like a tailwind.

What Changed: The Trade Deal That Broke the Playbook

At the center of this disconnect is the U.S.-EU agreement: a politically convenient move that gives both sides tariff leverage while opening up U.S. oil, gas, and defense exports.

It’s designed to:

• Prop up U.S. manufacturing

• Keep Europe hooked on U.S. LNG

• Signal domestic strength ahead of November

But the unintended consequence? It’s pushing foreign capital into dollar-denominated assets, driving the greenback up—and leaving EM and eurozone risk looking shaky.

Stocks Up, But So Is Volatility

Why are stocks rallying alongside a strengthening dollar? There are three reasons—and none are comforting:

1. Retail is back: Reddit boards are lighting up again. MEME ETF flows are up 400% from May.

2. Passive flows are blind: Index funds don’t care about macro. They follow trend.

3. Short squeeze fuel: Hedge funds betting against rate-sensitive names are being steamrolled by thin summer liquidity.

This isn’t a healthy market—it’s a leverage-fueled drift upward with fragile internals. If the dollar keeps climbing, earnings guidance next quarter will crack, especially from tech multinationals.

The Fed Is Cornered

The FOMC meets this week. No one expects a hike—but they do expect clarity.

The problem? The Fed can’t thread the needle:

• A hawkish tone will spike yields and further strengthen the dollar, pressuring global liquidity.

• A dovish tilt could reignite inflation expectations, especially as import prices surge under tariffs.

Either way, we’re not in a Goldilocks moment. We’re in a fragile equilibrium, with the Fed sitting atop a volatile structure of leverage, sentiment, and geopolitics.

What No One’s Saying: This Isn’t Just FX

The dollar is a signal. When it moves, the world reacts.

And right now, it’s telling you:

• Liquidity is tightening behind the scenes

• Foreign central banks are losing control

• The next crisis won’t come from where you expect

EM currencies are wobbling. Treasury auctions are thinning out. Gold is down despite global uncertainty. That’s not normal.

This isn’t about Powell. This is about the end of the American carry trade—and what happens when money starts running home.

Think Ahead

If you’re still chasing momentum or glued to tech breakouts, ask yourself.

What happens when Q3 earnings hit, and the dollar’s 8% higher year-over-year?

Margins shrink. Revenue misses pile up. And those “safe” passive flows? They can turn into forced selling very fast.

Tools for This Market: Surmount

If you’re still making trades by gut feel or toggling between spreadsheets and news feeds, this is your wake-up call.

Surmount is an AI-driven strategy builder that helps investors:

• Build and invest in systematic portfolios without code

• Backtest macro-aware strategies

• React to real market conditions, not noise

Whether you’re worried about the dollar shock, yield spikes, or volatility gaps—Surmount gives you the toolkit to play offense when others freeze.

Sidebar Thought: The Invisible Credit Risk

High-yield spreads are compressing while corporate defaults tick up. Leverage ratios remain high. If the dollar keeps climbing, foreign debtors paying in USD will break before anyone notices.

Just like 1997. Just like 2018. Just like every time before.

From Noise to Signal: What I’m Watching

• U.S. Dollar Index (DXY): Watching 108 as a key breakout

• 10-Year Treasury Yield: Caught between foreign demand and inflation drift

• VIX vs MOVE Spread: Telling you equity complacency is not confirmed by bond volatility

• Emerging Market CDS Spreads: Cracking at the edges

This isn’t fear-mongering. It’s signal-hunting in a world of manufactured optimism.

Not Financial Advice. This newsletter is for informational and educational purposes only. It does not constitute investment, legal, or tax advice. The opinions expressed are solely those of the author and do not reflect the views of any affiliated organizations or institutions. Please consult a licensed financial advisor before making any investment decisions.