The recent dip in the US dollar to its lowest level this year signals a need for global investors to reassess their portfolios, according to the CEO of one of the world’s leading independent financial advisory and asset management firms.
Investors are closely watching for guidance on the future direction of US interest rates in Federal Reserve Chair Jay Powell’s upcoming speech at the Jackson Hole symposium. Markets are already anticipating multiple rate cuts by the end of the year.
Nigel Green, CEO of deVere Group, comments, “With the Fed likely to reduce interest rates in September, market conditions are evolving, presenting both opportunities and challenges for global portfolio managers.
“The dollar’s 2.2% decline against a basket of other currencies in August reflects a broader shift in investor sentiment as expectations for rate cuts become more certain.
“This shift should lead investors to reevaluate their strategies, especially those with significant exposure to dollar-denominated assets.”
As the US dollar weakens, international equities and assets in other currencies are positioned to benefit.
“A weaker dollar typically enhances the appeal of commodities, emerging market equities, and foreign bonds, making them more attractive to US investors looking to take advantage of favorable exchange rates. For global investors, this might be the ideal time to rebalance portfolios and increase exposure to international markets that could benefit from the dollar’s decline,” Green adds.
Emerging markets, in particular, often perform well when the dollar weakens, as their dollar-denominated debt becomes easier to manage and local equities may gain from a renewed appetite for risk.
Green continues, “Investors may consider increasing allocations to exchange-traded funds (ETFs) that are likely to benefit from this trend.
“Moreover, commodities like gold and oil, which are priced in dollars, often see price increases when the dollar weakens, offering another potential avenue for diversification.”
With the S&P 500 regaining most of its August losses, a more risk-on sentiment appears to be returning to the market.
This resurgence in risk appetite could signal an opportunity for investors to further diversify into equities that have underperformed, particularly in sectors sensitive to rate cuts, such as technology and consumer discretionary.
Green concludes, “The dollar’s decline indicates a shift in market dynamics that could benefit those who act strategically.
“Diversifying away from US-centric investments and increasing exposure to assets that stand to gain from a weaker dollar could be a wise strategy in the coming months.
