The next phase of the US dollar bear market
The fourth long-cycle US dollar bear market since the mid-1960s is likely underway. Investors should look outside the US for returns
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THE cyclical US dollar-weakening narrative began in late-2022, as it became clear that the Fed tightening cycle would be joined by the European Central Bank (ECB) and lead to an interest rate differential between USD and euro rates, reversing the widening that drove the dollar’s strength through much of last year.
Now, with a pause in hikes expected from the Federal Reserve moving through the summer while the ECB is forecast to continue its hikes, this gap should narrow further, providing an impetus for further euro gains.
As dollar headwinds built across the Atlantic, similar strains are emerging across the Pacific, as the Bank of Japan (BOJ) adjusted its yield curve cap from 0.20 to 0.50 per cent for the first time, bringing about a 7 per cent weakening in the US dollar since October 2022.
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