Dollar Smile

Theory that the US dollar appreciates in two opposite scenarios: (a) US economic outperformance (capital flows in chasing growth) and (b) global crises (flight to safety into Treasuries). The dollar weakens in the middle: synchronized global expansion when capital chases higher returns elsewhere.

Helps explain why USD has rallied in both 2008 (panic) and 2022 (Fed tightening alone) but underperformed in synchronized 2017-2018 global growth.