HSBC said that the "explosive" rise in the US dollar will be one of the biggest painful trades in the second half of the year.

HSBC stated that a significant increase in the US dollar could become one of the biggest "pain trades" of the second half of this year. The bank expects the US dollar to gradually strengthen in the first half of 2027, and warned that if the Federal Reserve hints at tightening policy more aggressively than the market expects, or if there is another outbreak of geopolitical tensions, the US dollar could experience a "explosive" rally. Risks have increased since the Fed's June meeting. At the June meeting, policymakers focused on inflation and did not provide much forward guidance. This has shifted market attention back to interest rate differentials, driving the US dollar to strengthen against major currencies over the past two weeks. "While a stronger dollar will bring pain, we believe the 'pain trade' in the forex market will be characterized by an explosive rally in the US dollar," analysts Paul Mackel and others pointed out in a report on June 29th.