Market Update • 27 June 2025
The standout move of 2025 so far is the weakening US Dollar. Whilst equity markets have largely reversed the ‘Liberation Day’ sell-off, the weakening of the US Dollar against the other major global currencies has continued.
Year to date we have seen a c10% drop against the Pound, 13% against the Euro, and 8% against the Japanese Yen. This weakening of the Dollar is having a big impact on UK investors looking at Sterling-based returns and the returns for US domestic investors from investing internationally.
Sterling Investor Perspective
The US stock market has gone from the leading stock market in the world to one of the laggards in Sterling terms and UK investors in Gilts are doing substantially better than investing in US Treasuries.
US Dollar Investor Perspective
Looked at from an American investor perspective, US investors are up around 4% investing in their domestic stock market so far this year, and about the same in US Treasuries. However, they are up c17% investing in the UK FTSE 100 and c19% investing in the European stock markets. They have made 13% investing in UK Gilts and around 16% in UK corporate bonds.
Those return differentials don’t go unnoticed, and they are differentials we have not seen for a long time.
What is causing the US Dollar to decline?
There are a range of theories:
- This week’s moves came from a dovish statement from the Fed suggesting further interest rate cuts are imminent. Relatively low base interest rates usually weaken currencies. President Trump is constantly whingeing that rates are too high; he wants lower interest rates and a weaker Dollar, which he thinks will help the US economy.
- There is fear over the US deficit and Government debt levels. The jury is out on the impact of the ‘Big Beautiful Bill’ – will it increase or reduce the US deficit? We do know US debt is now c$36trillion and over 120% of GDP, according to Fiscal Data – the highest debt to GDP ratio since 1950. The US Government has more than $10 trillion a year of new bond issues to sell to continue to fund maturing debt and the ongoing deficit. US longer dated bond yields are still rising. Foreign investors have historically been big buyers but appear to be getting more risk averse – will something break?
- Investors are starting to reposition their investments away from US Dollar-based assets, US shares, and US bonds. The performance of US assets and the US Dollar since the financial crisis has meant investors had become very concentrated in US assets. As the rest of the world’s assets start to outperform (as seen above), it would be normal to expect some shift out of US assets to the rest of the world. Foreign investors are likely the first to move, but domestic investors will no doubt be tempted by such return differentials. There is enormous scope for this momentum shift to continue.
- President Trump and uncertainty. Investors hate uncertainty and the world is very polarised on Mr Trump and his views on how to fix things – not everyone agrees with him (and that’s putting it mildly). Liberation Day’s reciprocal tariffs have been paused, but they have yet to be resolved. Have Trump’s actions in Iran made the world safer or more dangerous? What will he do next?
Impact on Tideway’s Portfolios
In bonds we are virtually 100% Sterling based, so there has been no impact from the Dollar weakening. Portfolios with international bond holdings, which will be US Dollar heavy, will have been hurt or will be spending away returns hedging back into Sterling.
In equities we increased our already underweight US position earlier in the year which is giving us outperformance of the MSCI world index so far this year.
Our main switch was out of Fidelity US index and into Redwheel Global Intrinsic Value, the Redwheel fund is ahead of the US index fund by 14% year to date and 7% over 12 months.
Founded in 2000, Redwheel is an independent, global investment firm specialising in active equities and convertible bonds, with offices in London, Miami, Singapore, and Copenhagen. The firm has assets under management of c.$17.6bn as of 31st March 2025. We have invested in their Global Intrinsic Value fund primarily to be invested in lower-valued companies than the very highly-valued companies that dominate US indices, but as can be seen below by comparing their geographical exposures to the MSCI world index they are currently getting a substantial performance tailwind from currency movements.
The Redwheel Fund Country Exposures
The MSCI World Index Country Exposures
In this piece, Nick looks at some further changes we have made in our equity fund holdings lately and on this link Stephen O’ Sullivan writes about developments in the Middle East.
These are fast moving events and our roving reporter put pen to paper on this ahead of the US ‘Midnight Hammer’ strike (clearly Trump has an eye on the film rights!), only to wake up the next morning to find out some of his questions had been answered.
Since then, we also now have a ceasefire, but his piece is still a good take on the high-stakes gamble being taken first by Israel’s Netanyahu and now Trump. The US Dollar continues to fall.
