The Buck Stops Here

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Over the last two years, the world has witnessed a parabolic strengthening of the US dollar compared to its developed-market counterparts. Dollar strengthening actually started just after the global financial crisis as a slow methodical slog higher marked by both pullbacks and rapid ascents. But it was only last summer that the stronger dollar began to make headlines as USD/JPY hit 135 (135 Yen = $1) and USD/EUR broke parity. As we start 2023, the dollar has pulled back 12% from its high in September 2022, but remains 25% elevated from its lows at the start of the last decade. Is this a temporary respite that reverses in a risk-off recession, or does the buck stop here?