Monetary Matters with Jack Farley The Dollar’s Impossible Trifecta | Jon Turek on Why USD Hedging Flows Will Increase Throughout Fed’s Rate Cutting Cycle
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Oct 20, 2025 Jon Turek, founder of JST Advisors and macro research expert, discusses the shifting dynamics of the dollar in this engaging conversation. He explains why declining U.S. interest rates will make dollar hedging more appealing for foreign investors and how this could impact the global market. Turek also dives into China's trade surplus, the ongoing gold bull market, and the implications of U.S. fiscal policy on global yield curves. With insights on foreign flows and the Fed’s potential rate cuts, Turek paints a vivid picture of the dollar's future.
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Dollar's 'Impossible Trifecta' Broke
- The dollar's 2025 strength was built on an "impossible trifecta": expected high tariffs, high US growth, and high US rates.
- Once those three couldn't all hold, the dollar began a more durable downward adjustment.
Yield Advantage Drove Dollar Strength
- The dollar's overvaluation reflects PPP and a decade-long yield advantage for the US that attracted capital.
- Front-end US real yields have fallen while Europe and Japan have closed the gap, eroding a key dollar support.
Hedging Costs Fueled Unhedged Flows
- Foreign investors flowed unhedged into US assets because hedging costs were prohibitive given low domestic rates.
- That unhedged positioning amplified dollar demand despite large US current account deficits.