Only a month ago many were expecting the USD to weaken this year, with some looking for asubstantial and structural decline in the greenback. But that conviction has waned, to bereplaced by hesitation and uncertainty. Some are even shifting to a view that the USD declinecould be ending. This appears to be based on the idea that US growth expectations are beingrevised higher – in some cases materially so – just as the FX reflation view has paused.For the latter, activity has been slowing in a number of places and on some measures back tothe level seen in Q2 2020, even though COVID-19 vaccines are increasingly deployed (see ‘EMFX Roadmap: Marathon, not a sprint’, 27 January 2021). This has coincided with some globalactivity surprises also losing upward momentum (Chart 1). Both of these developments havechallenged the FX market’s reflationary mindset and, we believe, played to the USD’s advantage.But what about the US growth recovery argument? Will this be strong enough to improve theUSD trend? It is tempting for us to believe so, after being USD positive through 2018 into 2020.We can understand why some are increasingly thinking this “US exceptionalism” is back. Thisrecent breakdown in the inverse relationship between the USD and equity markets is alreadyfostering thoughts of a new paradigm for the FX market whereby a stronger US growth narrativecoincides with both stronger equities and a stronger USD (Chart 2). Is a new FX regimeunfolding, particularly for the USD?