The US dollar typically appreciates in two scenarios, in times of exceptionalism in the US economy or in recessionary environments when investors search for a safe haven. This week, we investigate where we are in this cycle and if this relationship could change.

What does this mean for fixed income investors?

The US dollar’s performance will ultimately be determined by the actions of the Fed and by how inflation develops. The market currently expects the Fed to cut rates later this year and we expect the dollar to decline in tandem. The biggest risk to this view is “no landing” and cuts continuing to be removed from market expectations, which would happen if the US continues on its exceptional economic growth path. If the opposite economic situation occurs and a recession ensues, the dollar may not appreciate as it has in past recessionary environments given the wider market context of overseas investors holding a significant amount of US assets already. With this said, the dollar smile is still a useful concept to consider and investors should be vigilant in understanding the currency risks within their portfolios and ensure they have appropriate risk management measures in place. 

About the Bond Bulletin

Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Our common research language based on Fundamental, Quantitative Valuation and Technical analysis provides a framework for comparing research across fixed income sectors and allows for the global integration of investment ideas.


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