The dollar’s move to the downside in recent weeks as been good for U.S. equities, commodity prices, and precious metals, and it has given inflation stories a boost, but what looks like dollar weakness may actually be euro strength flowing out of recent policy actions, Roger Hirst said during today’s Real Vision Daily Briefing.

Hirst said certain EM currencies are still weakening versus the dollar and the ECB and BOJ may find it difficult to hit their inflation targets should their currencies continue to strengthen. If either acts to weaken their currencies as a self-regulating mechanism because they’re not hitting their inflation targets, the dollar may once again rally. And if that happens, some of these inflation stories could see some profit-taking and a sharp move back, he said.

Hirst believes the uptick in inflation we’re seeing is a result of pent-up demand rather than a real structural issue. He said this is a pent-up demand effect that we’ve seen in countries whose currencies have gone up and gone down, which Hirst said tells him it’s not that true fiscal story of fiscal expenditure and central banks printing money to create a huge leg higher in inflation. He believes that’s to come somewhere in the 12 months ahead.

Going forward, Hirst is watching for EM currency strength; if EM currencies start to properly strengthen it is a signal that we’re not just in inflation but reflation. In true times of global reflation, the dollar is on the back foot and other currencies outperform, he said.

If EM currencies start to really catch a bid versus the dollar then we keep with the inflation trade: we keep the gold, we keep the silver, we keep those sorts of trades, he said. If they don’t, we will likely see the euro reverse.