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The CIO anticipates renewed weakness in the US dollar as the economy slows and fiscal deficits come into focus. Despite a recent rebound, the dollar is expected to decline further, prompting recommendations for investors to reduce USD exposure and diversify into currencies like the yen, euro, and British pound. The unsustainable twin deficits and potential changes in Fed leadership may exacerbate this trend.
The G7 meeting reaffirmed its commitment to free-floating exchange rates, avoiding competitive devaluations, while expressing concerns over unfair trade practices and macro imbalances, particularly regarding China's trade surplus. US Treasury holdings have decreased by $30 billion since April, with anticipation building for the upcoming TIC data release. Despite lower realized FX volatility, expected volatility remains high for EUR/USD and USD/JPY, indicating investor caution ahead of significant events.
The Swiss Federal Department of Finance is appealing to the Federal Supreme Court against a ruling that deemed the reduction or elimination of bonuses for former Credit Suisse executives unlawful. This follows the Confederation's financial support to Credit Suisse during its liquidity crisis in March 2023. Meanwhile, Germany's economy showed unexpected growth in Q1 2025, attributed to anticipatory effects of US tariffs, although experts warn of a potential GDP contraction later in the year due to ongoing industrial challenges.
The recent downgrade of the US's AAA rating by Moody's has heightened concerns over the USD, prompting investors to consider rebalancing their FX exposure. With expected gradual USD weakness, opportunities to diversify into currencies like EUR, JPY, GBP, and AUD are emerging, alongside maintaining a 5% gold allocation due to ongoing geopolitical tensions. Additionally, the AUD faces downside risks from a dovish RBA, while the USDHKD remains a viable funding currency within its pegged trading band, particularly when interest rate differentials favor HKD borrowing.
UBS has upgraded FANUC Corp's rating from Neutral to Buy, slightly lowering the price target to JPY 4,930. The analyst cites anticipated growth in infrastructure spending and strong sales in factory automation, particularly in China, as key factors supporting this positive outlook. Despite challenges from US tariffs, FANUC's financial health remains solid, with an attractive stock valuation and potential for increased robot sales due to production shifts back to the US.
Goldman Sachs reported a 30% drop in net income for its Japan securities arm, totaling ¥27.6 billion ($190 million), amid a challenging year for foreign banks in the country. While Barclays and Deutsche Bank also experienced profit declines, Bank of America returned to profitability, and UBS saw an 82% increase in net income. Despite the downturn, Goldman Sachs remained the most profitable foreign bank in Japan, earning three times more than its nearest competitor.
Deutsche Bank's George Saravelos warns of a declining market appetite for funding the US's twin deficits, as 30-year yields hit 5%. He notes that rising fiscal deficits, driven by consumer demand, contradict efforts to reduce the trade deficit, leading to potential vulnerabilities for the dollar and US bond market. With slowing inflows and increased foreign ownership of US assets, a reckoning for the dollar may be imminent.
Deutsche Bank's George Saravelos warns of a declining market appetite for funding the US's twin deficits, as rising fiscal deficits contradict efforts to lower the trade deficit. He highlights the risks for the dollar and US bond market, suggesting that a reckoning may occur if foreign financing wanes, potentially leading to dollar weakness. The situation is exacerbated by high foreign ownership of US assets and extreme valuations, indicating a need for the US to address its imbalances to avoid a disorderly correction.
The US dollar is poised for long-term depreciation due to extreme valuations and changing fiscal policies, according to Deutsche Bank. The dollar has been overvalued by over 20% relative to purchasing power parity for three years, while the widening current account deficit raises further concerns. Although short-term fluctuations may support the dollar, multiple downward pressures suggest a challenging outlook ahead.
Japan's wealthiest citizens remain apprehensive about a potential yen crash, fearing a decline to levels not seen since the 1980s due to economic stagnation and inflation. Many are shifting towards foreign assets and gold, while holding cash as a safer option amid skepticism about Japan's economic future. The yen's recent weakness has not attracted foreign investment, raising concerns about the country's long-term economic viability.
Japanese Yen
Currency
The information provided herein is generated by experimental artificial intelligence and is for informational purposes only.
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