CIO reiterates their expectation for renewed USD weakness and thinks any bouts of dollar strength are opportunities to hedge or take on active short positions. (ddp)

But with the Congress likely to pass a deal, we see renewed dollar weakness ahead. We continue to advise hedging excessive USD long exposure and using the recent uptick in option volatility to engage in yield pick-up strategies.


The direction of a weakening dollar remains clear.


  • The debt ceiling deal should spark a relief rally and support risk-on assets, weighing on the USD.
  • China's recovery remains on track, and the benefits of lower energy prices have yet to fully play out in Europe. We expect the global economic growth outlook to improve in 2H.
  • The Fed, which has a recession in its baseline projection, remains likely to lead the rate-cutting cycle among G10 economies.

We keep the AUD and JPY as most preferred.


  • We expect the Reserve Bank of Australia to keep its tightening bias, and a moderately stimulatory budget should mean no rate cuts this year.
  • A range of indicators like AU-US yield spreads, capital flows, and local central bank pricing suggest that recent selloff in AUDUSD has gone too far.
  • Japan's 1Q23 GDP data revealed a robust economic expansion led by private consumption and business spending, providing comfort to the BoJ regarding policy normalization, which we expect in 2H23.

We like gold; and stay neutral on CHF, EUR, and GBP.


  • We think gold is likely to break its all-time high later in 2023 and forecast prices will hit USD 2,250/oz by June 2024.
  • Robust central bank demand, broad USD weakness, and rising US recession risks should all support gold.
  • The Eurozone, the UK, and Swiss central banks are lagging the Fed in this rate-hike cycle, and we now see upside for all three currencies against the USD.

Did you Know ?


  • In the statement accompanying its May meeting, the Fed removed wording in previous versions stating that “additional firming may be appropriate.”
  • Gold has traditionally played an insurance role in a portfolio context. We expect prices to rise over the next 12 months, with ETF inflows and elevated central bank holdings.
  • Japan was a laggard in reopening its economy after COVID-related lockdowns. Consequently, inflation, employment, and house prices there rebounded later than in other G10 countries. We expect the Bank of Japan to eventually follow other G10 central banks and tighten its ultra-loose policy.

Investment view


To position for a weaker greenback, investors should diversify their dollar cash or fixed income holdings, hedge outright, or position in options or structured strategies that could deliver positive returns in the event of USD weakness. We rate the AUD and JPY as most preferred.


Main contributors - Daisy Tseng, Dominic Schnider


Content is a product of the Chief Investment Office (CIO).


Original report - Does the US dollar strength have legs?, 30 May 2023.