US Dollar and Economic Outlook

Claudio Irigoyen, head of global economics research at BofA Global Research, provides insights into the US dollar outlook, treasury yields, and the global economic scenario.

US Dollar and Treasury Yields

• The US dollar is expected to remain soft but not face a sharp disorderly decline.
• Rising US treasury yields are linked to fiscal and policy uncertainties.
• The market is demanding a higher risk premium on US assets due to hesitation over investment decisions.
• Global investors are rebalancing portfolios, shifting from US to European assets, contributing to the dollar's weakness.

Global Investment Shifts

• There is some moderation in the global investor base, which had become significantly overweight on US assets.
• US consumption is slowing, but not indicating a recession.
• India is highlighted as a resilient market due to structural reforms, demographic momentum, and strong domestic demand.
• Broad decoupling in global markets is unlikely despite slowed growth in the US and China.

India's Economic Appeal

• India remains a compelling investment narrative amid a challenging global environment.
• Projected GDP growth is 6.3% by 2025.
• Inflation is decreasing, providing the Reserve Bank of India (RBI) with room to cut rates.

US Fiscal Bill Concerns

• The fiscal bill poses risks of entrenching a structural fiscal imbalance.
• Potential higher rates due to a larger deficit could negate any stimulative effects.
• The approved bill suggests a primary deficit of approximately 3.5% of GDP and a headline deficit of 6.9%.
• These deficits are unsustainable without significant revenue growth.