SUMMARY
Fundamentals suggest the US dollar may be even stronger than you may think. But with interest rate cuts on the horizon, here are some investments that may benefit when the US currency weakens.
It is not in the Fed’s interest to lower rates after a major recession is underway. Avoiding a recession in 2024 requires that the Fed not keep monetary conditions too tight for too long.
The Fed has had four tightening or easing cycles since 2008 while the Bank of Japan (BoJ) has been static. This shows the Fed to be far more activist than other central banks.
The Fed has a history of easing when employment growth is positive (on average, +146K positive employment for the start of easing cycles since 1980).
We believe the US Dollar (USD) is stronger than interest rate differentials with Europe and Japan imply. Investing globally would allow USD investors to benefit from the fundamental performance of foreign shares, as well as the appreciation of their home currency versus the USD.
On an opportunistic basis, Japanese companies could be a beneficiary of a weaker USD. Japanese tech firms providing semiconductor equipment, battery technology, robotics and automation are globally competitive in growing industries. And, Japanese banks would likely benefit from yield curve normalization.
