There are various factors behind its devaluation. To begin with, the dollar was significantly overvalued under Joe Biden’s presidency. While China and Germany were in recession, and Europe was stagnant at best, the USA looked to be a bastion of economic prosperity.
Second, based on any conventional industry analysis, current US economic policy is harmful to the economy. There are good and compelling reasons why Americans buy certain goods more cheaply from abroad rather than producing them at home. This specialization in production has allowed the USA to focus on expensive software and internet services rather than cheap manufactured goods.
Ultimately, tariffs on imports also lead to higher manufacturing costs for US companies as they are forced to import some of the raw materials and semi-finished products they need for their production. This results in lower margins and/or higher inflation.
The latest cause for concern in US economic policy is the tax and spending package just passed by Congress. The extension of tax breaks – previously described as temporary – will cause US debt, which has now surpassed French levels, to rise even faster.
Whether it’s higher inflation, lower company profit margins or rising debt, none will help the US dollar to regain its previous strength in the short term.
Unfortunately, it also means that the US stock indices’ almost daily highs are unlikely to translate into strong portfolio returns for Swiss investors. Measured in francs, the US stock market is actually one of this year’s worst performing markets. It means our significant underweight in the USA has paid off for our customers.
To benefit even more from the falling dollar, we decided to increase our position in gold this month. The precious metal traditionally benefits disproportionately from a lack of confidence in the dollar. Consequently, we expect the gold price to continue its rise in US dollars, but also in francs.
We’re also increasing our holding in emerging market equities. A weak dollar improves export conditions for all countries that have pegged their currencies directly or indirectly to the dollar. In our view, even imposing American import tariffs will do little to change the situation. This is because the US can’t do without the supply of raw materials or other inputs for its production overnight. At the same time, while only a portion of emerging market exports are affected by the tariffs, the more favourable exchange rates are beneficial for a far greater share of export volumes.
A final word on our investment strategy: it has proven to be extremely successful so far in a turbulent 2025 compared to its rivals. This underlines once again that strategy is key to achieving good investment results in the long term.
