'Sell America' Trade Narrative Revives Amid Macro Uncertainty

Barclays has identified a complex set of macro forces driving down the US dollar and long-end rates, reviving the 'Sell America' trade narrative. According to the bank's strategists led by Emmanuel Cau, uncertainty over the Fed path, JPY carry trade unwind, and AI capex sustainability have contributed to this trend.

The combination of higher long-end yields and a weaker dollar since the most recent FOMC meeting has left investors struggling to attribute cause. Barclays notes that markets are still pricing one Fed hike by year end, but argues that a fair amount of hawkishness may already be embedded in yields.

The bank's FX team adds that the risk premium in the dollar should remain above pre-FOMC levels following a more dovish shift in Fed messaging. Japanese yen dynamics add another layer of complexity, with JGB yields now sitting materially above 2024 levels and coordinated yen stabilisation efforts weighing on both the dollar and Treasury market.

Despite this, equities have continued to grind higher, cushioned by a robust earnings season. Barclays points to its own flows data showing little evidence of a significant rotation away from US stocks into other regions.