Reprinted with the kind permission of the Global CIO Office
• The market seems to want to price the expectation that tariffs are still a distant challenge… if at all
• Economic surprises have been to the upside with some houses upgrading global growth forecasts
• Rate cuts are still likely even if more modest in the US but the UK likely to cut soon
• A survey of Central Bankers shows concern about the dollar and confidence about further gold price appreciation
• Investors should also seek out ‘hard’ currencies such as SGD and CHF and income generating assets
While we await the final shape of the incoming US tariff regime, global growth continues to hold up surprisingly well. Last week, Bank of America upgraded its forecast for global GDP growth in 2025 from 2.8% to 3.0%, citing stronger-than-expected activity across major economies. Meanwhile, BlackRock reiterated its overweight position in US equities, a stance that may seem to suggest “business as usual.” But that’s not quite the full picture.
The backdrop remains one of looming tariff escalation, even if the actual implementation of the next wave has been pushed back—again—to the beginning of August. New highs in US equity markets and the apparent upgrades to growth forecasts reflect a longer-than-expected wait for the regime of higher tariffs, slower growth, and stickier inflation to take hold. Some market participants are beginning to bet that this regime may never fully materialize.
Growth Surprises, But Risks Linger
Estimates of global growth are indeed ticking higher in some quarters. The Citigroup Economic Surprise Index—a gauge of how economic data compares to forecasts—has moved decisively above zero in recent weeks, confirming that data has consistently beaten expectations. The indicator for the US has rebounded sharply from deeply negative to neutral.
However, the threat of higher tariffs remains just over the horizon. We know from previous cycles that trade barriers ultimately push up inflation and suppress demand. Still, as long as implementation is delayed, risk assets are running with the relief rally. Investors who de-risked prematurely are now feeling the pain as equity indices and broader risk assets continue to grind higher.
Debate Over Fed Policy Intensifies
The debate about future Fed policy continues. In the past week, President Trump called for an aggressive 300 basis point rate cut “as soon as possible,” arguing that US monetary policy is too restrictive. In contrast, JPMorgan Chase CEO Jamie Dimon warned markets to prepare for the possibility of a rate hike, citing persistent inflationary risks and policy misjudgments. At this point in time, markets are pricing in two 25bp rate cuts by the October meeting—although the probability of those cuts has declined over the last two weeks, as stronger data and hawkish Fed commentary have tempered expectations.
Central Bankers Turning Cautious
An insightful UBS survey of global central bank reserve managers reveals a subtle but important shift in sentiment. What was once cautious optimism about global economic stability is giving way to concerns over long-term stagflation and monetary policy credibility.
The survey showed: – A rotation into gold, emerging market assets, and green bonds—signaling hedging against both inflation and geopolitical risk
– 50% of nearly 40 central bankers surveyed now consider a US debt restructuring “inevitable”
– Two-thirds worry about the independence of the Federal Reserve, particularly as US fiscal policy appears increasingly politicized
– Almost half now question the integrity of US economic data, a worrying signal for global capital allocation decisions
– Nonetheless, 80% still see the US dollar as the dominant reserve currency, though many cite gold as the asset with the strongest performance potential through to 2030.
Dollar Rally and Sterling Weakness
The US dollar staged a meaningful rebound last week, with the DXY Index bouncing from 96.8 to 97.8—the first sustained rally since mid-May. Several technical indicators that had been flashing strong sell signals are now neutral, with some moving averages and momentum signals even turning modestly bullish.
In contrast, UK sterling lost momentum after the emotional Commons appearance of the Chancellor of the Exchequer—already dubbed by some as “the tears that moved the market.” But tears turned to tangible concerns when data confirmed a second consecutive monthly contraction in GDP. UK output fell 0.1% in May, following a 0.3% decline in April, led by weakness in industrial production and construction.
This has sharpened expectations of a rate cut from the Bank of England. Markets now assign a 78% probability of a 25bp rate cut at the August meeting—up from just 64% two weeks ago. These cuts may become even more necessary if reports prove correct that the Chancellor is preparing another round of tax increases in the autumn budget. With fiscal tightening looming, monetary easing will be needed to prevent further economic drag.
Diversification into Hard Currencies
Whether or not the US recovery continues, or whether currencies like sterling, the euro, or the yen become more attractive relative to the dollar, one clear trend is emerging—as noted earlier in this week’s commentary. Investors and central bankers alike are increasingly seeking ways to hedge their US dollar exposure or find alternative reserve currencies and asset classes. In this context, the conversation is increasingly turning toward so-called “hard currencies.” Two currencies stand out: the Swiss franc and the Singapore dollar. Both have historically outperformed the dollar, even during the greenback’s sustained bull run from 2009 through 2023.
Swiss France and Singapore Dollar the real Hard Currencies
The challenge with both the Swiss franc and the Singapore dollar lies in the limited depth of their capital markets. There are fewer broad asset classes available in these currencies that offer both currency strength and compelling return narratives. Yet, they remain valuable as niche diversifiers.
Take the Singapore dollar. It has largely held its ground against the US dollar since 2015, averaging around 1.35 over the past decade. More recently, it has appreciated meaningfully to 1.28, reflecting underlying economic resilience. While Singapore’s economy is relatively small and its capital markets narrow, one area of interest for international investors is real estate investment trusts (REITs). Despite demographic and geographic constraints, the economy continues to generate 1–2% annual GDP growth. A constrained real estate supply has supported valuations and yields. As a result, well-managed, high-yielding Singapore REITs—backed by a stable currency—may offer a modest but reliable portfolio diversification option for global investors.
Similarly, the Swiss franc has shown a steady, modest annual appreciation since 2012. Switzerland benefits from globally respected multinational corporations, especially in sectors like pharmaceuticals and financials. Though its capital markets are not particularly deep, investors can still find high-quality equity exposure. For example, Novartis, one of the country’s pharmaceutical giants, currently offers a dividend yield of around 3.8%, with expectations for continued dividend growth. These types of names offer an opportunity to move capital into a harder currency while retaining exposure to world-class companies with consistent cash flow, strong governance, and long-term capital return potential.
Reprinted with the kind permission of the Global CIO Office
