Asset Allocation Chart of the Month
The Dollar’s Descent
- The U.S. dollar has declined notably versus developed market currencies, reflecting growing investor concern over rising policy uncertainty. The Trump administration’s erratic approach to trade, particularly shifting stances on tariffs, and concerns over reducing Fed independence have undermined confidence in the U.S. policy outlook.
- While the dollar’s slide is concerning, we do not believe it marks the beginning of a secular decline.
- Which dollar are we talking about?
- The US Dollar Index (DXY) is composed of 6 developed market currencies (the euro represents 57% of the index), and it has fallen more sharply
- In contrast, the trade-weighted dollar (broader and more reflective of U.S. trade flows, including emerging markets) has been more stable
- In times of stress, markets typically seek out safe-haven assets. But with the U.S. perceived as the source of global uncertainty, capital is flowing into other traditional safe havens like the euro, yen, and Swiss franc. This shift underscores a temporary loss of the dollar's safe-haven appeal, but not its structural role in the global system.
- We do not view this as a threat to the dollar’s role as the world’s primary reserve currency or a global medium of exchange. The U.S. continues to offer the world’s deepest, most liquid capital markets and strong institutional credibility, all supportive of the dollar’s long-term position. The dollar is used in over 80% of all global currency transactions, and 64% of global debt is issued in dollars.
- The dollar's recent weakness is not consistent with interest rate differentials, whether nominal or real, which remain supportive. These differentials should help limit the downside, even amid ongoing trade uncertainty.
- Dollar weakness has benefited U.S. investors in developed international equities. However, we are concerned that a stronger euro and yen could hurt foreign corporate profits. Adding to the risk, tariffs and slowing economic growth in the two largest trade partners (U.S. and China) heighten earnings vulnerability for these export-oriented economies (Europe and Japan).
The Touchstone Asset Allocation Committee
The Touchstone Asset Allocation Committee (TAAC) consisting of Crit Thomas, CFA, CAIA – Global Market Strategist, Erik M. Aarts, CIMA - Vice President and Senior Fixed Income Strategist, and Brian Cheyne, CFA, CIMA - Senior Investment Strategy Specialist, develops in-depth asset allocation guidance using established and evolving methodologies, inputs and analysis and communicates its methods, findings and guidance to stakeholders. TAAC uses different approaches in its development of Strategic Allocation and Tactical Allocation that are designed to add value for financial professionals and their clients. TAAC meets regularly to assess market conditions and conducts deep dive analyses on specific asset classes which are delivered via the Asset Allocation Summary document. Please contact your Touchstone representative or call 800-638-8194 for more information.
A Word About Risk
Fixed-income securities can experience reduced liquidity during certain market events, lose their value as interest rates rise and are subject to credit risk which is the risk of deterioration in the financial condition of an issuer and/ or general economic conditions that can cause the issuer to not make timely payments of principal and interest also causing the securities to decline in value and an investor can lose principal. When interest rates rise, the price of debt securities generally falls. Longer term securities are generally more volatile. Investment grade debt securities may be downgraded by a Nationally Recognized Statistical Rating Organization to below investment grade status. Non-investment grade debt securities are considered speculative with respect to the issuers' ability to make timely payments of interest and principal, may lack liquidity and has had more frequent and larger price changes than other debt securities. Equities are subject to market volatility and loss. Growth stocks may be more volatile than investing in other stocks and may underperform when value investing is in favor. Value stocks may not appreciate in value as anticipated or may experience a decline in value. Stocks of large-cap companies may be unable to respond quickly to new competitive challenges. Stocks of small- and mid-cap companies may be subject to more erratic market movements than stocks of larger, more established companies. Investments in foreign, and emerging market securities carry the associated risks of economic and political instability, market liquidity, currency volatility and accounting standards that differ from those of U.S. markets and may offer less protection to investors. The risks associated with investing in foreign markets are magnified in emerging markets, due to their smaller and less developed economies.
The information provided reflects the research and opinion of Touchstone Investments as of the date indicated, and is subject to change without prior notice. Past performance is not indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing in certain sectors may involve additional risks and may not be appropriate for all investors. The indexes mentioned are unmanaged statistical composites of stock or bond market performance. Investing in an index is not possible. For Index Definitions see: TouchstoneInvestments.com/insights/investment-terms-and-index-definitions
Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one on the resources section or call Touchstone at 800-638-8194. Please read the prospectus and/or summary prospectus carefully before investing.
Investment return and principal value of an investment in a Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. All investing involves risk.
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