JP Morgan: The recent weakness of the US dollar is due to capital flows and market sentiment, and it is expected to stabilize within the year

JPMorgan Chase's Head of Asia Macro Strategy, Tang Yuxuan, believes that the recent weakness of the US dollar is not due to a shift in growth or monetary policy expectations. In fact, since the beginning of the year, the trend in interest rate differentials has favored the dollar. The current situation is similar to that of last April, primarily driven by capital flows and market sentiment leading to dollar selling. The bank believes this situation is ultimately temporary, just like last year. As the US economy gradually warms up this year, the dollar is expected to stabilize again.

When economic growth and interest rates become the dominant factors again, the bank tends to take short positions when the euro rises above 1.18 to 1.20 against the dollar. However, currencies that are more sensitive to growth, such as the Australian dollar and emerging market currencies, may continue to show strength relative to the dollar.

The bank believes that recent trends further support holding gold and reasonably allocating non-dollar assets in investment portfolios. Emerging market assets are attractive both in the current environment and when the factors driving dollar flows diminish, returning to a pattern of accelerating global economic growth. The bank's dollar diversification strategy framework suggests allocating about 30% of the portfolio to non-dollar markets with good liquidity and depth