The dollar on the wane?
The US dollar’s behavior appears to be durably impacted by Donald Trump’s policies. The greenback dropped significantly following the American president’s announcements on “Liberation Day” in early April, yet it barely benefited from the relief rally observed in risk assets after the reciprocal tariffs were suspended. Another case of weakness was recorded last week, amid renewed concerns over tariffs targeting the European Union. The dollar’s lack of rebound suggests a lingering mistrust among investors toward the United States, alongside capital outflows from US financial assets. Washington's silence in response to this depreciation only reinforces the view that the dollar remains on a downward trajectory. We had already reduced its weight in portfolios a few weeks ago, and a further decrease in exposure cannot be ruled out, especially as the dollar index (DXY) threatens to break below recent support levels.
Will European equities return to the spotlight?
European equity markets quickly erased their losses stemming from the announcement of US tariffs, buoyed by easing trade tensions. Since the beginning of the year, the EuroStoxx index has gained 10%, compared to a 1% decline for the S&P 500, an unusual performance gap for investors often disillusioned with Europe, to the point of sometimes deeming it “uninvestable.”
Are we at the dawn of a genuine outperformance cycle for Europe? Several factors support this thesis. The economy is gradually recovering, with improvements in the manufacturing sector and rising consumer spending, as evidenced by retail sales data. Moreover, the positive effects of the ECB’s accommodative monetary policy are beginning to take hold. In a surprising twist, Donald Trump’s pressure has pushed Europe into a more proactive stance. Germany, traditionally hesitant, has launched a major stimulus plan, which is benefiting the broader eurozone.
Nonetheless, visibility remains limited. Trade discussions are far from over, and Washington is now threatening to impose a 50% tax on European imports, signalling tense negotiations with the EU.
In this uncertain macroeconomic environment, volatility is likely to remain elevated. Furthermore, after the sharp V-shaped rebound in markets, a period of consolidation, or even a temporary correction, seems a probable scenario, which we believe could present an attractive entry point. Indeed, as major concerns emerge in the US, notably the widening deficit, leading to rising long-term rates and a weakening dollar, Europe may present itself as an appealing alternative amid growing uncertainties.
Despite recent inflows, net outflows from European equity funds since the onset of the war in Ukraine still exceed €240 billion. Moreover, European valuations continue to trade at a significant discount compared to US equities. Earnings forecasts remain cautious (5–6% excluding energy), and Europe stands out with attractive dividend yields, supported by a growing wave of share buybacks. Our conclusion: we are buyers on weakness.
This week’s figure: USD 112’000
Bitcoin reaches a new all-time high at USD 112’000. It appears to be benefiting from doubts surrounding American exceptionalism and the accompanying weakness of the dollar. Despite the speed of the rally, positioning indicators do not yet reflect significant investor enthusiasm.
Author
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Christina Carlsten has been an analyst and senior manager on European markets with Piguet Galland since 1997. She began her career at Banque Scandinave in Switzerland with private clients and then moved on to financial analysis and fund management. Within the Bank, she is responsible for the management of thematic certificates and funds invested in European and global equities. She holds a degree in economics from the University of Lund (Sweden).
