CIO continues to advise hedging excessive USD long exposure and using the recent uptick in option volatility to engage in yield pick-up strategies. (ddp)

But we still believe the Fed will stop hiking before its major peers, contributing to renewed dollar weakness. We continue to advise hedging excessive USD long exposure and using the recent uptick in option volatility to engage in yield pick-up strategies.


The direction of a weakening dollar remains clear.


  • The Fed, which has a recession in its baseline projections, remains likely to lead the rate-cutting cycle among G10 economies.
  • China's recovery remains on track, and the benefits of lower energy prices have yet to fully play out in Europe. We expect the global economic growth outlook to improve in the second half.


We see upside for the Japanese yen and Austrlian dollar.

  • We expect the Reserve Bank of Australia to keep its tightening bias, and a moderately stimulatory budget should mean no rate cuts this year.
  • A range of indicators like AU-US yield spreads, capital flows, and local central bank pricing suggest that the recent selloff in AUDUSD has gone too far.
  • Recent Japanese data points to an economic expansion, making it easier for the Bank of Japan to end its ultra-easy monetary policy.

Gold also looks set to benefit from a weaker dollar, in our view.


  • We think gold is likely to break its all-time high later in 2023 and forecast prices will hit USD 2,250/oz by June 2024.
  • Robust central bank demand, broad USD weakness, and rising US recession risks should all support gold.
  • The Eurozone, the UK, and Swiss central banks are lagging the Fed in this rate-hike cycle, and we now see upside for all three currencies against the USD.

Did you Know?


  • In the statement accompanying its May meeting, the Fed removed wording in previous versions stating that “additional firming may be appropriate.”
  • Gold has traditionally played an insurance role in a portfolio context. We expect prices to rise over the next 12 months, with ETF inflows and elevated central bank holdings.
  • Japan was a laggard in reopening its economy after COVID-related lockdowns. Consequently, inflation, employment, and house prices there rebounded later than in other G10 countries. We expect the Bank of Japan to eventually follow other G10 central banks and tighten its ultra-loose policy.

Investment view


To position for a weaker greenback, investors should diversify their dollar cash or fixed income holdings, hedge outright, or position in options or structured strategies that could deliver positive returns in the event of USD weakness. We rate the AUD and JPY as most preferred.


Main contributors - Daisy Tseng, Dominic Schnider


Content is a product of the Chief Investment Office (CIO).


Original report - Will US dollar strength persist?, 13 June 2023.