UBS recently advised investors to reevaluate their exposure to the U.S. dollar as changes in global dynamics may lead to a weaker dollar in the future. If you have a significant amount of cash held in dollars, consider analyzing how your currency mix aligns with your long-term objectives.

The Dollar’s Dominance Faces Challenges

Historically, the U.S. dollar has seen consistent increases due to higher interest rates and stronger GDP growth compared to other major economies. However, UBS highlights several emerging factors that may shift this trend:

• Changing Growth Projections: As Europe and parts of Asia begin to recover, the U.S. may lose its growth edge.

• Federal Reserve Expectations: The Fed’s rate-hiking cycle is nearing an end, and the ECB and Bank of Japan are hinting at tightening policies.

• Shifts in Capital Flow: International stimuli and surging equity markets abroad are prompting a diversified approach away from dollar-denominated assets.

To track the dollar against other currencies, utilize the Forex Daily API for real-time updates on currency valuation.

Aligning Currency Holdings with Future Obligations

UBS strongly recommends mapping anticipated expenses, both recurring and one-time, to identify the relevant currencies for settlement. Examples might include:

• Education Costs Abroad: If planning for tuition in Europe, it can be wise to hold euros for seamless transactions.

• Retirement Funding: For expats needing currency conversions, aligning funds with necessary currencies (like CHF for Switzerland or JPY for Japan) lowers conversion risks.

• International Import Needs: Businesses sourcing goods from abroad may benefit from holding foreign currency to hedge against unfavorable exchange rates.

Establishing a clear connection between currency holdings and financial liabilities can prevent costly conversions in unfavorable market conditions. While making adjustments, consider the balance between yield, liquidity, and volatility.

Alternative Currency Suggestions

Euro (EUR)

UBS acknowledges the euro as a suitable option for investors needing flexibility and stability. With a projected tightening policy from the ECB, getting familiar with euronomics through the Economics Calendar API is advised.

Swiss Franc (CHF)

Traditionally, the Swiss franc serves as a hedge currency during risk-off market phases, providing protective value in market downturns.

Japanese Yen (JPY)

As its yields face low yield curve control, having JPY can help manage currency risks tied to potential Japanese expenses.

Practical Steps for Rebalancing Currency Exposure

1. Assess Current Holdings: Create a detailed inventory of cash and liquid assets categorized by currency.

2. Outline Upcoming Payments: Project when and how much of your forthcoming liabilities require currency conversions.

3. Determine Target Allocations: Set ownership percentages to reflect desired currency exposures, balancing returns with operational stability.

4. Reallocate Smartly: Employ low-fee currencies like ETFs, money-market tools, or FX-forward contracts to gradually increase non-USD holdings.

5. Monitor Policy Developments: Keep abreast of major central bank announcements, especially those from the Fed, ECB, and BoJ, to refine positions accordingly.

By proactively reevaluating dollar allocations prior to potential declines, you secure better rates and lower risk for future transactions.