Sitting in the White House Oval Office, South African President Cyril Ramaphosa kept his composure while Donald Trump casually tossed false claims of genocide at him. The man who rails against fake news once again supported his accusations with the flimsiest of footage, this time featuring Julius Malema, a politician firmly on the margins of power in South Africa. The spectacle was, even by Trumpian standards, uniquely unsettling. The author of Trump Gaza, who eagerly entertains the idea that free speech has evaporated in my own country, the UK, now sees genocide in perhaps the only part of Africa he can reliably name. It also suits the project to nod in the direction of great replacement theory advocates. The performance was another example of the gravitational distortions now shaping global macro.
Because Trump is not just a political actor. He is the director of one of the three destabilising forces currently tugging at the global system, and the architect of another. This creates what might best be described as a Three-Body Macro Problem. Like Liu Cixin’s Trisolaran world, markets now orbit a system with no stable solution: only shifting alignments, temporary calm, and abrupt disruption.
The three bodies are as follows.
First, the US growth–inflation tradeoff, growing harder to manage as fiscal impulse collides with rate expectations.
Second, Trump’s policy chaos—fiscal, tariff, and diplomatic decisions driven by Trump’s ego and his priors.
And third, the global recoil—a slow but deepening shift in how foreign capital views the US. Not just as a market, but as a partner. As a steward. I heard someone refer to this as ABUSA - Anything But the United States of America.
These three forces interact non-linearly. Together, they destabilise equilibrium. Just as the Trisolarans cycled unpredictably between stable and chaotic eras, so too do markets now shift between soft-landing hope and systemic volatility, with little warning, and no clean model to rely on.
Markets, meanwhile, have been enjoying relative tranquillity, but may have missed the ominous foreshadowing from the Oval Office. The recent tariff truce with China was abruptly disrupted on Friday by fresh threats aimed instead at Europe, with a 50% tariff announced for June 1st. It’s unclear if this marks the beginning of a new phase or just another keyboard outburst from a man incapable of strategic alignment. The stated aim remains US reindustrialisation to counter China. But the execution seems to involve antagonising allies more than adversaries, laying bare the breadth of its incoherence. Once again, strategic thinking is absent. Policy flails in unpredictable arcs.
Traders must now confront Trump’s political physics: unpredictable gravitational swings in which brief periods of calm alternate with sudden collisions. Markets exist within this unstable orbit, subject to interactions between domestic macro tensions, erratic executive power, and the world’s creeping loss of trust in the US as an anchor.
We may now be transitioning back into chaos. These disruptions aren’t anomalies. They are a part of our new normal. Tariff threats are blunt weapons wielded by mood. If negative reports reach him from a colleague or through his TV set, the fingers start tapping a new missive. The institutions that once imposed predictability, such as central banks, courts and treaties, now operate inside a system tilted off-axis.
The Three-Body Macro era is upon us. What follows in this note explores how to navigate it.
In the remainder of this note, I will discuss:
The Framework - Where do we stand?
100 Days of Failure
The Trump Cycle
Sabotaging the USD Revisited
Asian EM FX
Country-specific notes - Brazil, Turkey, Poland and Hungary
The Framework - Where do we stand?
In past notes, I’ve often referred to a framework for thinking about EM FX. One element I call the Dragon–Greenback Squeeze. This describes the twin pressure of expensive dollar funding - tight Fed, a strong USD - and a compromised Chinese growth engine. Overleveraged, overmanaged, and underdelivering. That squeeze has become key to a soft period for EM assets. It’s occasionally interrupted by fleeting Goldilocks windows, when soft landing hopes deliver falling volatility, enabling carry strategies to perform. EM credit only seems to require the absence of acute threats, but high-yield EM FX requires more pronounced vol suppression.
If global macro is now orbiting through something like a Three-Body system, the vol suppression moments are becoming briefer. Are we in one of those calmer windows now?
It depends on how two key US risks evolve. One is recession, which could soften the Fed and the dollar. The other is acceleration, should the US economy not weaken enough after the tariff shock to begin a recessionary feedback loop, then loose fiscal policy could drive a rebound. Any rebound, given current levels of inflation, driven higher by tariffs, will give the Fed a headache. “Too Slow” Powell might become glacial when it comes to cuts at least.
China is treading water. Growth expectations have steadied with the help of targeted fiscal support, but the policy mix still looks cautious. There’s no major credit impulse. Real estate remains a drag. Policymakers seem focused on containing fragility rather than reigniting growth. That lowers the risk of a tail event, but also limits the upside. It’s a floor, not a launchpad.
US growth forecasts have become erratic and more dispersed. The tariff threats in March uniformly dented expectations. Some of that was reversed after the de-escalation with China, but the data remains noisy. Inflation is still sticky. Fiscal policy is undisciplined. A hard landing remains possible. So does another wave of price pressure. What’s certain is volatility, both in the data, and in how the Fed might respond.
EM is caught in the middle.
China isn't strong enough to pull global beta higher. The US might not be weak enough to anchor rates. Both economies are unstable enough that a single data point or policy announcement could swing sentiment. That makes directional EM calls more fragile. But relative value opportunities still exist.
We are still in what I’d call a Chaotic Interlude. It feels calm on the surface, but only because we’ve paused, not because anything has aligned. The Dragon–Greenback Squeeze is intact. The difference now is how fragile the path forward has become. And in this regime, the dollar remains the most sensitive asset for signalling stress and recalibration.
100 Days of Failure
A hundred days in, and Trump 2.0 already looks like a wreckage of bungled projects. The attempt to squeeze China seems to be backfiring, strengthening its global position just as the White House tries to undermine it. His push for a Nobel Peace Prize is faltering on multiple fronts. And there's a real chance he’s laid the groundwork for a recession later this year.
He hasn’t escaped the patterns of Trump 1.0. Yes, he now has more loyal backing inside the White House. But his attention span and pain threshold remain too short to push through effective change. The echo chamber around him makes him more likely to adopt the wrong strategy and stick with it longer than he should. He’s still an incompetent populist, and he’s still bad for America.
That, oddly enough, is a kind of relief. It means he’s less likely to drive us into the truly dangerous territory that markets began to price in before he blinked on tariffs. He lacks the discipline and tenacity for sustained damage. But what we’re left with is slower decay. A gradual erosion of institutions, the rule of law, and the US’s international standing.
This is already being priced. It encourages portfolio diversification away from the US and chips at the soft power premium embedded in the dollar. It undermines faith in the executive’s role in future crisis management. It casts doubt on the reliability of swap lines, the rule of law, and broader institutional response. For now, risk markets remain comfortable with these elements. But when the cycle turns, the safety net might not be where it used to be.
The Trump Cycle
Much has been written about Trump’s psychology, but it remains the cleanest lens through which to understand his behaviour. His narcissism is well known, and textbook. But it's the deeper emotional wiring that provides the real insight.
Every decision is filtered through a single question: does this make me look like a winner? That stems from a childhood shaped by conditional approval, distant parenting, and the transactional lessons of his father. Praise came through dominance. Affection was scarce. Loyalty became a survival need. Humiliation became existential. That wiring never changed.
This is why Trump treats politics as a test of personal loyalty. There is no overarching strategy, no 9-dimensional chess, it’s driven by emotion. He doesn’t build coalitions. He doesn’t negotiate in the usual sense. He seeks submission. That’s why so many of his staff exit in disgrace. It’s not about the job they’ve done, it’s about acts of betrayal.
Like any other toddler, he is easily bored. Real governance doesn’t hold his interest. What he craves is the opening act, the grand gesture, the emotional sugar rush of dominance. And so we get the rhythm of Trumpian policy:
Infatuation Phase:
He becomes enamoured with an idea when it offers immediate admiration, dominance, or narrative control. Ending a war? Perfect. He gets to be the great man bringing peace.Conditional Commitment:
His attachment is shallow. It lasts only as long as the idea continues to flatter the ego. Once the headlines fade or complexity creeps in, the energy wanes.Devaluation Phase:
If the idea begins to look weak or threatening — if it risks public embarrassment — he starts to mock it. The same proposal that once made him feel like a winner becomes “unfair,” “boring,” or someone else’s fault.Abandonment or Rebranding:
He either drops it completely or reframes a partial outcome as total victory, even if the substance is lost. Saving face matters more than finishing the job.
This cycle repeats across themes, tariffs, immigration, foreign policy, and even the Fed. He wants to play the hero in act one and be applauded before act two begins.
His authoritarian instincts are real, but shallow. He’s not trying to redesign the state. He’s trying to bend it toward personal gratification (and enrichment). Obedience matters more than competence. Flattery more than expertise. Victory more than outcomes.
And this should shape how we read markets. The next escalation will not come from a grand plan. It will come from a slight, or a fear, or the need to regain narrative control. That makes the environment unpredictable, and more importantly, unhedgeable through conventional measures.
Sabotaging the USD Revisited
Back in March, I wrote Sabotaging the USD - that looks increasingly like the right framing.
Over the past two months, the great and the good have flipped their USD views. The new USD bears won’t write much of a mea culpa, even though most of them were expensively late. I’ll do my best to lay it out for them here.
The turning point for many only came in April, when the recently tight relationship with relative rates broke down dramatically.
Post-election, pre-inauguration, the consensus was for higher US rates and slower global growth. That was supposed to drive the orange line higher and take the USD with it. Yes, the dollar was expensive, but for good reason. The US was exceptional from a productivity perspective and also offered carry, superior equity returns (via tech), and risk-off utility - via the USD smile thesis.
The USD rallied into the inauguration, but faltered quickly after on the weight of positioning. Early rhetoric suggested Trump might be soft on China, and fragile USD longs didn’t have the patience to wait for tariffs.
Embedded in the bullishness on US exceptionalism was misplaced optimism on the growth side. Many assumed Trump would return with a focus on deregulation and business-friendly policies. They looked past the risks and treated Trump 2.0 as a rerun of 2017. Instead, we got rapid fire, erratic policy and escalating trade uncertainty. Reciprocal tariffs. Diplomatic confrontations. Poor communication. Late reversals. It was enough to trigger a confidence shock, and this time the driver was domestic.
That changed the dollar narrative. It was no longer just about relative rates or growth. It was about institutional credibility and the perception of competence. Growth forecasts were revised lower not because of external shocks, but because of policy uncertainty coming from the White House.
The later de-escalation with China helped a bit on the growth side, but didn’t restore credibility. Now markets are weighing the short-term cyclical relief against longer-term structural damage.
On valuation, I still don’t see the USD as particularly extreme. When you adjust for productivity and trade gains, it’s expensive but not wildly so by historical standards. Below is an updated version of a chart I produced in a prior note. This lack of extreme overvaluation means you require other factors to extend the move.
In the near term, I remain biased to a weaker USD. US growth risks are still skewed to the downside. Some may argue that the worst of the tariff news has passed, and markets can look through soft data. I’m not convinced. Markets often trade the data twice. Once when expectations move and once when it hits. Even telegraphed transitory data can feel less transitory when you’re in the middle of it.
Longer term, I don’t think we’re headed for a collapse in the dollar. But I do think we’re in a period of reappraisal. The political risk premium has risen. The soft power advantage has narrowed. That changes how the USD trades, even if it doesn’t change the reserve currency story.
The sabotage is slow, but visible. And it’s coming from inside the office.
Asia FX
Recent discussions around Asia FX have reopened some familiar debates, particularly in light of ongoing adjustments in USD valuations and regional trade dynamics. Some recent local feedback from local investors, and revised forecasts suggest a market increasingly split between tactical positioning and structural hesitancy.
Taiwan stands out as a good microcosm. Local lifers appear to be divided. One camp sees persistent USD softness ahead, with equity inflows driving more USD selling by exporters and retailers. This group is active, using NDFs and proxy hedges. They are pushing multiple pairs lower. Another camp believes the move may have largely run its course. They view the strength as a political signal to Washington during trade negotiations, and are now exercising patience.
KRW is the most obvious proxy hedge for TWD. It’s cheap, liquid, and allowed to move. It reflects similar structural dynamics and may also benefit from official preference to show willingness to appreciate the Won. It looks particularly attractive on a valuation basis, even after the dollar reversal.
CNH/CNY remains more controversial. The currency is cheap, but Beijing’s preference for stability remains paramount. The daily fixings continue to shadow a weak dollar but favour depreciation against the basket.
Recent local data also shows increased exporter FX conversion and rising forward hedging by residents, both signs of tactical adjustment, not a regime change. Capital is still leaking. Domestic demand is soft. Rates are low. A clean CNY rally seems unlikely and undesirable. The currency may not move much, so it’s potentially attractive as a low-beta short, which might fit neatly into relative value Asia baskets.
The broader regional picture still leans toward selective longs. Based on carry-adjusted valuation, INR and IDR remain solid, particularly with oil prices capping current account concerns and local central banks still leaning dovish. On the other side, MYR and CNH remain attractive shorts, both for valuation and flow reasons. TWD is may be too hot to handle - but the large valuation shift, the exaggeratedly low yields make it more of a candidate to be on the short side in a USD-neutral basket.
Growth momentum remains weak across the board. The reacceleration in Malaysia last year made it an outperformer, but the currency is no longer cheap, reserves are relatively low, and the country is exposed to any re-escalation in China-linked trade tensions.
Again, I lean on the above chart to visualise the carry-versus-valuation landscape, where INR and IDR cluster in the favourable quadrant and KRW and CNH sit in the undervalued-but-low-carry corner. The rest, MYR, THB, TWD, sit awkwardly, both rich and negative carry.
None of this suggests a clean regime. But in a world where relative value might be more tradable than directional conviction, these asymmetries could offer an edge. Especially when you accept that policy predictability in Asia, while imperfect, now looks remarkably disciplined next to the disorder coming out of Washington.
Notes on selected other EMs
Brazil
This still sits as the cheapest and highest carry of the major liquid EM currencies, so the burden of proof falls on reasons not to be long, at least on a relative basis. One such reason might be an overly dovish pivot from the BCB. That said, in a recent group webinar with Galípolo, he made it abundantly clear that temporary disinflation prints won’t shift policy. The stance remains restrictive, and the move toward scenario-based rather than forecast-led guidance should temper expectations of early easing. The real risk should still lie on the fiscal side. Lula’s approval ratings are in decline, and the temptation to deploy populist fiscal tools is rising. For now, the CB seems focused on credibility over responsiveness, and structural stickiness in monetary transmission, particularly in credit and labour markets, suggests rates may stay high longer than the curve implies, supporting the BRL.
Turkey
As with all carry trades, the key is to size for survivability and lean in after the cleanout. That might favour the current moment. The recent VaR shock flushed out much of the leverage, and in a small-format session with a member of the MPC, there was a notable shift in tone. Liquidity management apparently now takes precedence, with intervention policy tweaked accordingly. The disinflation narrative is being embraced more confidently, and private credit conditions are tightening in a way that reflects genuine macroprudence. A benefit of the political shock and policy response. Conversations with the real sector seem to be shifting. Firms are openly discussing hard landing risks. The central bank seems content with the current FX glide path, which still offers attractive returns.
Poland
PLN remains, on my metrics, the most overvalued currency in the liquid EM complex. And while the macro remains solid, recent post-election calls with local experts highlight growing uncertainty around the presidential run-off. Trzaskowski’s underperformance and Mentzen’s stronger-than-expected showing have altered the path forward. Should Nawrocki win, institutional reform efforts would stall, and the coalition could lose momentum heading into 2027. That’s not a volatility event per se, but for a currency trading rich to most models, it creates a clear asymmetry. The NBP under Glapiński will remain unpredictable. The risk here is more institutional than cyclical; EU flows are supportive, but should be in the price. As last year taught us in Mexico, never underestimate the power of political change.
Hungary
HUF has recovered well, still screens attractively on vol-adjusted carry, and is cheaper than its regional peers. At face value, the setup looks compelling. In a recent roundtable with two NBH deputy governors, there was the usual reassuring caution and desire for FX stability. The central bank recognises the disinflation trend but is reluctant to lean into it too far. Core inflation is sticky, and recent food price controls suggest fiscal discipline may be slipping again. Surveys point to fading business investment, which I read as having an undertone of regime pessimism. For me, the tension between monetary discipline and fiscal opportunism leaves me sidelined. If I see another broad risk-off brewing, locking in a good entry point long EURHUF might work.
Closing Thoughts: The Three-Body Macro
This note began with a metaphor, but it ends with a framework. We’re not just dealing with noise. We’re navigating a system governed by three competing forces:
The US growth/inflation tradeoff — sticky inflation, patchy productivity, and an uncertain path for rates
Trump’s policy agenda — a mix of expansionary fiscal drift and disruptive tariffs, without strategic coherence
ABUSA — the global pushback against US leadership, where trust in the dollar, institutions, and alliances continues to erode
None of these forces are new, but their interaction is what matters. Like the three suns in Liu Cixin’s novel, they pull against one another, destabilising the old orbits and making prediction less useful than preparation.
For markets, this means volatility is the regime. The dollar still benefits from inertia and a lack of alternatives, but the soft power premium is leaking steadily. Some may still look to the next data print for clarity, but the structural story is one of drift and disorder.
This is not a return to chaos. It’s the recognition that we never left.
The Three-Body markets are here. The orbits won’t settle. Trade accordingly.
Signing off
Thank you for your time and attention. Please feel free to reach out with any feedback.
I continue these ad hoc notes to help organise thoughts, keep in touch with a wider community of like-minded investors. And for the sheer pleasure of writing.
As always, if you’re trading, be disciplined and be lucky.
Stephen
Disclaimer
The contents of this note, including any analysis, opinions, and commentary, are purely for informational purposes and reflect solely the personal views of the author, Stephen Elgie, at the time of writing. They should not be construed as investment advice nor as an inducement, recommendation or solicitation to engage in any form of currency trading or other investment activities.
All information, data, and material presented in this note are believed to be accurate and reliable, yet they are not to be taken as a guarantee of future performance. The views expressed herein are subject to change without notice.
Readers are urged to exercise their own judgment and due diligence before making any investment decisions. The author and his employer, Argo Capital Management Limited accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material.
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