Despite yet more noise from the U.S. administration over the weekend around the timing and scale of tariffs- very little has actually been agreed. Meanwhile, the global economy and markets are simply getting on with it. The calm implied by the rally in risk assets may be misplaced… but what to do?
While we await the US administration’s conclusive stance on its upcoming tariff regime, global growth continues to hold up surprisingly well. Last week, Bank of America upgraded its forecast for 2025 global GDP growth to 3.0% from 2.8%, citing stronger-than-expected activity across major economies. Meanwhile, BlackRock reiterated its overweight position on US equities, a stance that may seem to suggest “business as usual,” but is not quite the full picture.
The current backdrop remains one of looming escalation in tariffs, even if the actual implementation of the next round has been pushed back—yet again—to the beginning of August. US equity markets scaling new highs and the apparent upgrades to growth forecasts reflect markets’ longer-than-expected wait for the (higher) tariff regime, slower growth, and stickier inflation to take hold. Some market participants are now betting that this regime may never fully materialise.
Growth Surprises, But Risks Linger
Estimates of global growth are indeed inching up in some quarters, even in recent days. The Citigroup Economic Surprise Index – a gauge of how economic data compares with forecasts – has moved decisively above zero in recent weeks, confirming that data has consistently beaten expectations. The indicator for the US has rebounded sharply to neutral from deeply negative.
Chart 1: Citigroup Economic Surprise Indices Improve
Index
Source: Bloomberg
While the implementation of the tariffs is delayed, the relief rally is fueling the advance in risk assets. Investors who de-risked prematurely are now feeling the pain as equity indices and broader risk assets continue to grind higher. However, the threat of higher tariffs remains just on the horizon. History suggests that trade barriers ultimately push up inflation and suppress demand.
Debate Over Fed Policy Intensifies
The debate about the shape of future Fed policy continues. Last 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. Currently, markets are pricing in two 25-bp 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.
Chart 2: Market Pricing of Fed Rate Cuts
Source: Bloomberg
Central Bankers Turning Cautious
An insightful UBS survey of global central bankers reveals a subtle but important shift in sentiment. Cautious optimism about global economic stability is giving way to concerns over long-term stagflation and monetary policy credibility. The survey showed:
Dollar Rally and Sterling Weakness
The US dollar staged a meaningful rebound last week, with the DXY Index bouncing to 97.8 from 96.8—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 the tears turned to tangible concerns when data confirmed a second consecutive monthly contraction in UK GDP. Output fell 0.1% in May, following a 0.3% decline in April, as industrial production and construction weakened.
This has sharpened expectations of a rate cut from the Bank of England. Markets now assign a 78% probability of a 25-bp rate cut at the central bank’s August meeting—up from 64% just 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 we have noted earlier in this 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.
Chart 3: Swiss Franc and Singapore Dollar—the real Hard Currencies
Source: Bloomberg
However, the challenge with both the currencies 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, for instance. 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, its real estate investment trusts (REITs) have elicited significant interest from international investors. 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 modest but steady 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.
Gary Dugan – Investment Committee Member
Bill O’Neill – Non-Executive Director & Investor Committee Chairman
14th July 2025
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