The dollar's floor is a policy choice, not a market one

The dollar proxy changed hands at 28.06 this morning, +0.11% on the session. That is a number, not a thesis, and the distance between the two is where most currency commentary goes wrong.

The model most people are using

The standard frame treats a currency as an output: growth differentials in, exchange rate out. It works well enough for long stretches, which is exactly what makes it dangerous. The periods when it stops working are short, violent, and the only ones where the position size mattered.

A currency is a policy variable before it is a market variable. The policy in question is often not the one being discussed on the day.

What I actually watch

• The front end, relative. Two-year differentials against the rest of the developed world. This is the honest version of the growth story, stripped of the narrative.
• Offshore funding cost. Whether the bid is for yield or for dollars themselves. Those two look identical on a chart and mean opposite things.
• Official flows. Slow to appear, hard to reverse, and almost never in the morning commentary.

The first of those has been doing very little. The second is the one I would want to see move before I did anything.

Why I am flat

A range you cannot explain is not a range you can trade. It is a range you are guessing at.

I do not have a satisfying account of why the dollar has held where it has. Positioning data offers one story, rate differentials offer a weaker one, and neither is strong enough to carry size. Being flat is a position, and on this one it is the honest one.

What would change my mind

A sustained move in front-end differentials, in either direction, with funding costs confirming rather than contradicting it. Absent that, moves of this size are noise dressed as signal.

I would rather be late to a dollar trend than early to three false starts. The cost of being late is a smaller move captured. The cost of being early, repeatedly, is a book that never gets the chance to be right.