Video: "The next big trade is that the inflation scare is over"

I spoke to Reuters earlier today about the US dollar and why it's declining today.

“We are headed back to a low inflation world, that’s the message of the market right now," said Adam Button, chief currency analyst at ForexLive in Toronto. "The next big trade is that the inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term scare is over."

The dollar is weaker across the board today with AUD and NZD leading the way in a classic risk-on move. The dollar index is in danger of taking out the Feb 2 low and touching the worst levels in a year.

The Fed was at the vanguard of hiking rates and until a few weeks ago, the belief was that the terminal Fed top could be significantly higher than many other developed economies. Now, that's looking far less likely.

So how does it shake out? I spoke today with Dale Pinkert at TradeGateHub about the themes I'm thinking about and how to trade the end of inflation worries.

To be sure, this isn't a trade that started today. The bond market has been on it for some time, though it initially was masked by the flight to safety after the banking crisis.

At the same time, there is plenty of worry percolating about growth and how that fits into the equation is of paramount importance to risk assets. I'm of the view that any recession will be shallow (though it may be long) so lower interest rates and better margins will outweigh any dip in demand. That could certainly be proven wrong and global consumers will be tested heavily in Q3 after the summer spending kick and after depleted savings are run off.

I'm also a commodity bull due to underinvestment and that theme could kick up another round of inflation, especially with OPEC gunning for higher oil prices. I'm also sympathetic to demographic arguments about higher inflation and also to persistent demand for higher wages.

All that adds up to plenty of cross currents but for now, the trade is a simple and straightforward one.