The U.S. Dollar: Safe Haven in Times of Global Crises?

The scenario of weakening global growth and high uncertainty favours the U.S. dollar, says Dr. Andrea Siviero, investment strategist at ETHENEA Independent Investors S.A. He sees potential for further appreciation.

The U.S. dollar continues to benefit from an aggressive Fed and a resilient U.S. economy. "Despite the tighter position of the ECB and the strong appreciation of the U.S. dollar in 2022, we expect the U.S. dollar to remain strong against the euro," comments Investment Strategist Siviero. In contrast, he sees a recession as almost inevitable in the coming quarters for the eurozone economy, which has been troubled by the energy crisis and declining confidence. "Given high sovereign debt and pronounced regional divergences, tightening ECB monetary policy remains a very difficult process. A tighter ECB policy could provide some short-term relief for the struggling Euro. Nevertheless, it is unlikely to change the underlying patterns of euro weakness." ​ ​ ​

U.S. economy appears to withstand tighter Fed monetary policy

In 2022, the U.S. dollar appreciated by about 14% year-on-year against the Euro, making it the strongest currency within the G10. Siviero sees several reasons for the greenback's overall strength: For example, despite some sluggishness in the first half of 2022, the U.S. economy appears to withstand high inflation and tighter policy with a strong labour market, healthy wage increases, and solid consumer and business spending. He sees a risk of recession in the U.S. in the event of excessive monetary tightening by the Fed. "In the coming quarters, U.S. economic growth is likely to surpass that of the eurozone and China," the expert said. "Over the past 18 months, the U.S. dollar has also benefited from its safe-haven status, attracting international capital flows in times of global crisis."

In addition, a "stagflation bonus" for the U.S. results from high inflation and weaker global growth. Siviero explains, "The strength of the U.S. dollar against the euro has been boosted by weaknesses in the eurozone economy and divergence between Fed and ECB policy." The European economy had not yet recovered from the recession triggered by the pandemic when it was hit hard by the consequences of the conflict in Ukraine and the resulting sanctions against Russia. The latter led to a sharp rise in energy prices and a surge in inflation, which severely reduced consumer and business confidence. While the U.S. Federal Reserve has raised its key interest rate by 250 basis points since March, the process of adjusting the ECB's monetary policy measures has been delayed by a weakening economy, market fragmentation (widening of sovereign bond spreads within the eurozone) and political tensions. In the summer, when inflation reached a record high, the ECB changed its tone and became much more aggressive in order to lower inflation and control inflation expectations.

Recession in Europe almost inevitable - China suffers from zero-covid policy and real estate crisis

Siviero sees especially Germany’s economy, which is highly dependent on Russian energy, being hit hard: "The German industrial sector is suffering from supply bottlenecks and weak domestic and global demand. Despite a healthy labour market, wage growth is subdued, and consumer confidence is at an all-time low due to shrinking household purchasing power." The ECB seems determined to continue its path of tighter monetary policy to bring inflation back to target levels. Despite increasingly expansionary fiscal policies and additional aid from several European countries, Ethenea's investment strategist sees a European recession as almost inevitable.

In China, the third major global economic bloc alongside the USA and Europe, the economy has also been slowing down for some time. The Covid-19 outbreak has caused a supply and demand shock this year. "Despite political support, the zero Covid policy and the deep crisis in China's real estate sector could trigger a recession," Siviero's assessed.

Andrea Siviero
Andrea Siviero

Press contact

Wim Heirbaut

Senior PR Consultant, Befirm

Get updates in your mailbox

By clicking "Subscribe" I confirm I have read and agree to the Privacy Policy.

About Ethenea

ETHENEA offers a wide range of attractive investment opportunities for different investor profiles: risk-minimised, balanced and equity-focused.

Capital preservation and the achievement of stable long-term returns are key components of the investment philosophy of the Ethna Funds. The fund management consistently realises this objective through active management and flexible asset allocation across various sectors and asset classes.

ETHENEA wants to make a contribution and offer responsible and sustainable investment solutions. Therefore, ESG criteria are an important part of the investment processes of all Ethna Funds (Article 8 SFDR).

Further information and legal information can be found at ethenea.com.

 

PRESS RELEASE – not an official document

We would like to point out that all data and information made available to you has been thoroughly researched by ETHENEA. However, with regard to its correctness and completeness, we cannot assume any liability or warranty for damages incurred either by the recipient of this information or by third parties, either directly or indirectly. In the event that this text is published in any form and to any extent, the publishing entity (editorial office of the newspaper or associated or commissioned third parties, website, podcast, etc.) is obliged to include the necessary disclaimers and legal notices. In addition, in this context, we refer to our legal information: The information contained in the attached document does not constitute a solicitation, offer or recommendation to buy or sell units in the fund or to engage in any other transaction.  It is intended solely to provide the reader with an understanding of the key features of the fund, such as the investment process, and is not deemed, either in whole or in part, to be an investment recommendation. The information provided is not a substitute for the reader's own deliberations or for any other legal, tax or financial information and advice. Neither the investment company nor its employees or Directors can be held liable for losses incurred directly or indirectly through the use of the contents of this document or in any other connection with this document. The currently valid sales documents in German (sales prospectus, key information documents (PRIIPs-KIDs) and, in addition, the semi-annual and annual reports), which provide detailed information about the purchase of units in the fund and the associated opportunities and risks, form the sole legal basis for the purchase of units. The aforementioned sales documents in German (as well as in unofficial translations in other languages) can be found at www.ethenea.com and are available free of charge from the investment company ETHENEA Independent Investors S.A. and the custodian bank, as well as from the respective national paying or information agents and from the representative in Switzerland. The paying or information agents for the funds Ethna-AKTIV, Ethna-DEFENSIV and Ethna-DYNAMISCH are the following: Austria, Belgium, Germany, Liechtenstein, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; France: CACEIS Bank France, 1-3 place Valhubert, F-75013 Paris; Italy: State Street Bank International – Succursale Italia, Via Ferrante Aporti, 10, IT-20125 Milano; Société Génerale Securities Services, Via Benigno Crespi, 19/A - MAC 2, IT-20123 Milano; Banca Sella Holding S.p.A., Piazza Gaudenzio Sella 1, IT-13900 Biella; Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Spain: ALLFUNDS BANK, S.A., C/ Estafeta, 6 (la Moraleja), Edificio 3 – Complejo Plaza de la Fuente, ES-28109 Alcobendas (Madrid); Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The paying or information agents for HESPER FUND, SICAV - Global Solutions are the following: Austria, Belgium, France, Germany, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; Italy: Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The investment company may terminate existing distribution agreements with third parties or withdraw distribution licences for strategic or statutory reasons, subject to compliance with any deadlines.