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The Dollar will stay higher for longer as the U.S. economy is now "magically" less exposed to rising interest rates than it has been for many decades now, whereas the same cannot be said for the rest of the world.

This is according to new research from Deutsche Bank that finds a key driver behind U.S. growth exceptionalism is the economy's massively reduced sensitivity to interest rate hikes compared to the rest of the world.

"Starting with the corporate sector, we can see that interest expense 'magically' continued to collapse through Q3 of last year, remarkably reaching the lowest since the early 1960s," says George Saravelos, Head of FX Research at Deutsche Bank.

According to the analyst, U.S. corporates continue to earn money from higher cash holdings while paying interest on low-coupon fixed debt.

Regarding households, Deutsche Bank points out that net financial obligations are still below pre-COVID levels and the healthiest for more than three decades. "U.S. households are very far from being financially stressed," says Saravelos.

In fact, Saravelos points out that the U.S. is the only developed economy where interest costs have decreased sharply.

With corporates and households in the U.S. less exposed to debt than has been the case in the past, is it little wonder the impact of U.S. Federal Reserve rate hikes are not halting the economy's advance as many had expected?

Saravelos says in these circumstances, it does not make sense for the market to be pricing similar cumulative rate cuts from the Fed, ECB and many other central banks, as is currently the case.

"The real debate is not if the Fed cuts a few weeks sooner or later, but if it cuts by less or more than the rest of the world over the next two years," says Saravelos. "We continue to see the risks skewed towards less Fed easing and therefore in favour of the USD."