For some time we have been arguing that the choice of the US dollar as a good refuge – that is, that phenomenon that sees the green ticket appreciate both when things are good both when they go badly – stands vacillating, Since this currency no longer offers A reliable protection from the falls. This is what emerges from Weekly Bulletin Bond edited by Global Fixed Income, Currency and Commodities Group of JP Morgan Asset Management which reviews the Dollar, under the spotlight due to the continuous commercial tensions globally.
Is US dollar still a good refuge?
The macroeconomic picture It remains a total of negative for the US dollarsince the economic fate of the United States begin to converge with those of other developed markets. The Liberation Daywith the announcement of more severe duties and of a wide range of expectations, together with the continuous turbulence in global commercial relations, has pushed investors to question the exceptionalism of the United States and to evaluate the economic repercussions of these developments for consumers, the profits of businesses and the US economy in general. On the opposite side, some European countries, led by Germany, have abandoned the traditional tax conservatism in favor of an investment program for defense and infrastructure, thus offering a potential advantage for the economies of the region, on the verge of stagnation, and for the trust of investors in the active incoming in euros. Since the increase in expenditure is expected to amp primary deficits, global term term premiums are increasing, creating opportunities for national capitalism. In Germany, for example, national investors can take advantage of the increase in returns to purchase active on the internal market. The developed countries have proven not very inclined to make concessions on the tax side or to approve measures to reduce the deficit and the Congressal Budget Office of the United States provides for an increase in deficit, with a high share of interest on national debt as a percentage of GDP. The Trump administration has also intensified the pressures on the Federal Reserve (Fed) to cut interest rates and reduce the cost of the debt, which represents another negative factor for the dollar.
Quantitative assessments
The changing mosaic of the United States’s duties and fiscal policies has determined a significant drop in evaluation DEl Green Card after the announcement of the Liberation Day. The US dollar index (Dxy) fell from a multi -year maximum of 110, touched in January 2025, to about 98 points in July. There is still a margin for sudden variations of the index. For example, the recent signs of a healthy economy, dictated by a solid labor market and a rise in equity lists, have led to a modest appreciation of the dollar, as short -term speculators have reduced part of their short positioning on the green ticket, but the subsequent speculations on the working status of the president of the Fed Jerome Powell (and on its potential replacement with a candidate with a candidate with a candidate with a candidate with a candidate with a candidate Accomoding) caused a sudden drop in the Dxy index at the beginning of this week. After Trump denied the rumors, the Dxy recovered ground. However, in our opinion, the dollar remains overrated in the long run compared to most of the other currencies of the G10, those most actively exchanged on currency markets. This suggests that short positions in the dollar represent a good starting point, despite the strong reduction already observed in recent months.
Technical factors
The last two decades sthey have been characterized by the economic domain and the supper -perforce of the US marketswhile the massive foreign afflusses towards the US active ingredients brought the United States Net Investment International Paths near -90%. However, with the gradual decline of this period of US exceptionalism, the push to diversification and overseas investors have increased can aim to repatriate funds for the purchase of domestic active ingredients. The assets called in dollars have also become less effective coverage against risk and institutional investors have started to cover the positions in dollars, or to slow down the purchase of active ingredients called in this currency. Covering reports have increased but remain below long -term averages, indicating that there is still a room for maneuver. The United States continue to record negative commercial sales, historically compensated by greater influents in the capital account. According to current estimates, the United States is needed about $ 100 billion per month to repay the commercial deficit. If these affluent were no longer sufficient, the correction of the commercial imbalance would manifest itself through a weakening of the dollar.
What does it mean for bond investors?
Global commercial tensions and uncertainty cHe hovers around the US policies to the test the foundations on which the dollar strength rests. On the occasion of our quarterly summit on June bond investments, the group has recognized opportunities in exposure to foreign currencies (FX), financed with short positions on the US dollar, as one of the main investment ideas for the next three to six months. Despite the strong flexion of the assessments that took place in the first half of the semester, the real investors maintain a long positioning on the US dollar through the discovered American active ingredients. Since we believe that the green ticket can weaken further in the second part of the year, investors could consider a overall short positioning on the US dollar compared to the EurOE a diversified basket of currencies of emerging markets.
