On the result day of Brexit referendum, the global markets buckled up as Britain’s vote on European Union membership infected almost all asset class.

But on a long run, a sharp fall in real bond yields and a bounce in oil prices have taken the wind out of the dollar rally’s sails. On a trade-weighted basis it is only 4% stronger than a year ago, and 4% below the January peak.

The US is better placed than most countries to shoulder currency appreciation. While net trade has been a drag on US growth in recent quarters as the Fed likes to remind us, we would not pin the blame on the currency.

The culprit is weak global demand, while US exporters’ market share has remained broadly unchanged. If monetary easing is successful in boosting domestic demand in other parts of the world (Europe, China, Japan), the US will also be a beneficiary, despite stronger USD.

One thing we will be watching is the possibility for tax reform, following Paul Ryan being elected House speaker. With many US companies parking earnings abroad to avoid taxation on repatriation.

We expect the dollar to make further gains in due course, but we’re not overly excited about them. There are good reasons why the dollar won’t fall much further: non-oil commodities are vulnerable, the oil bounce may not go much further for now and last but by no means least, US real yields and rates have very little downside from here.

But it’s a struggle to dream up positive reasons for the dollar to rally. Higher real rates/yields require the Fed to tighten faster than markets expect and we’re not holding our breath on that. 

Dollar strength then relies on weakness elsewhere but the ECB and BOJ are almost out of room to ease further during H2 of 2016.

Current account surpluses in Japan and the eurozone are being recycled thanks to a voracious appetite for foreign assets but that is more likely to limit EUR and JPY gains than to drive major weakness. That leaves the threat that sluggish global growth triggers renewed capital outflows from China and a domino effect from the yuan to EM and commodity-sensitive currencies as the most likely catalyst for dollar gains from here.

The danger comes from non-oil commodities clearly, and how divergence between oil and metals prices plays out in FX will be interesting, but overall, stalling the rebound in commodities would be dollar-supportive.