Dollar weakness: risks and opportunities for the global economy at a glance!

Dollar weakness: risks and opportunities for the global economy at a glance!

The continued weakness of the US dollar has far-reaching implications for global markets and economic stability. Recently, macroeconomic confusion has increased, unsettling markets. This assessment is carried out e-fundresearch underpinnings that examine the possible macro scenarios for the year and point to more dovish trade talks between the US and China.

Currently, we can see that management teams and consumers are acting cautiously due to slower growth. Long-term interest rates in industrialized countries are close to 5.0% for US bonds and 2.65% for 10-year federal bonds. This could lead to higher total returns in the credit sector as well as attractive carry opportunities. There is debate over whether spreads could recover despite the challenges posed by the budget deficit and the risk of economic overheating.

Trade conflicts and their influence

Trade policy uncertainty triggered by the US-China conflict in 2018 and 2019 has also contributed to the current market situation. A report from Bundesbank highlights that the US dollar currency valuation rises in times of political uncertainty, easing pressure on imports from China. Chinese exporters reduced prices in U.S. dollars during this period, meaning the impact of U.S. import tariffs on Chinese products was mitigated.

In addition, the analysis shows that this constellation of trade tensions and US tariffs has had only a limited impact in the past. Average tariff rates increased by about 12 percentage points, but the dollar still appreciated, partially counteracting the effectiveness of the tariffs. This development has drawn new scenarios addressing onshoring and friendshoring, with countries considering moving critical production domestically and strengthening trade ties with safer partners.

Risks of dollar weakness

Despite the situation described, many analysts expect that the dollar will not weaken significantly. The influences such as the growth of the US economy, rising inflation rates and deregulation measures could certainly provide a tailwind. However, risk assessment remains necessary, especially if spreads return to all-time highs.

In summary, the challenges posed by the weakening US currency will continue to cause uncertainty in the market in the future. While fiscal measures could stimulate the economy, there is a risk that a sustained high deficit will cause the economy to overheat. The next few months will show whether the forecasts come true or whether new, unexpected developments will have an even greater impact on the markets.