What Should I Do With My US Dollar Exposure

The US dollar faces near-term geopolitical volatility but long-term structural headwinds from deficits and potential Fed cuts. Investors are encouraged to diversify into the Australian dollar, Chinese yuan, and high-yielding emerging market currencies.

Key Takeaways

• 1.Near-term US dollar movements are expected to be driven by geopolitical headlines, particularly developments regarding the conflict with Iran and the Strait of Hormuz.
• 2.Structural headwinds, including the US twin deficit and narrowing interest rate differentials as Fed cuts are realized, point to medium-to-long term USD weakness.
• 3.Investors should diversify away from excess USD holdings and align their currency exposures with their expected future spending and liabilities.

Table of Contents

• Key message
• 01 The US dollar has given up the majority of its gains since the Iran war started.
• 02 We expect the US dollar to weaken further in the medium to long term.
• 03 Investors should manage their currency exposure.
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