NEW YORK - Investors worldwide are revising their portfolio strategies in response to the US dollar's unforeseen strength, as economic resilience in the United States and persistent inflation signal a delay in anticipated interest rate cuts by the Federal Reserve.
Despite earlier forecasts of a weakening dollar in 2024, the currency's robust performance has surprised the financial community. Nigel Green, CEO of deVere Group, highlighted the need for investors to reconsider their asset allocations due to the dollar's continued momentum.
The dollar's resurgence can be attributed to the robust US economy, which has reinforced investor confidence and led to increased capital inflows. The Federal Reserve's cautious monetary policy, which has refrained from reducing interest rates, has supported bond yields and made US assets more attractive.
The International Monetary Fund's projection that US economic output will surpass that of its G7 counterparts significantly has also contributed to a narrative of US exceptionalism, bolstering US stocks and bond yields and enhancing the dollar's position.
In light of the strong dollar, Green advises investors to hedge currency risks or shift investments to sectors less affected by currency fluctuations, such as utilities, healthcare, and consumer staples. Conversely, sectors like industrials, with considerable international exposure, may encounter challenges due to currency translation effects.
The strengthening dollar is likely to attract foreign investors to US fixed income securities, potentially leading to lower yields as bond prices rise. Despite the dollar's strength, Green suggests that investment opportunities remain in international markets, advocating for selective investments in regions with promising growth or undervalued assets to diversify and strengthen portfolios.
Green anticipates the dollar's strength to persist through 2024 and into 2025, advising investors to adapt their investment mix accordingly. This analysis is based on a press release statement from deVere Group, a global independent financial advisory.
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