UBS on the USD and what to hold instead:
- We believe the main pillars of US Dollar strength last year-aggressive tightening by the Federal Reserve and a resilient US economy-are unlikely to support the currency going forward.
- Non-USD investors should strengthen their home bias with a currency hedge or asset shift. This is a natural move for non-USD based investors who have accumulated large savings in the dollar and face the risk of depreciation.
- Investors should also consider increasing exposure to select G10 currencies. We have the AUD as our most preferred currency, which we expect to benefit from China's recovery.
- We also see upside for the JPY and the CHF, as both countries benefit from low inflation.
- We also favour a select basket of emerging market currencies for carry.
- Investors can add gold to portfolios. The gold price measured in USD tends to rise when the Dollar falls on a trade-weighted basis and when US interest rates are declining.
