Allianz Investment: Expects the US dollar to face sustained resistance in 2025 and tends to reduce dollar exposure in the investment portfolio

According to the Zhitong Finance APP, Michael Krautzberger, Chief Investment Officer of Global Fixed Income at Allianz Investment, stated that the U.S. economy may face a slowdown in growth and rising inflation in the future, which contradicts the Federal Reserve's dual mandate of pursuing full employment and maintaining price stability. The trade policies of the Trump administration have put the Federal Reserve in a difficult position and led to high policy uncertainty for financial markets, households, and businesses. Allianz Investment believes that the current macro and policy environment is conducive to a steepening of the U.S. yield curve. Additionally, it is expected that the U.S. dollar will face sustained resistance in 2025, thus leaning towards reducing dollar exposure in the portfolio.

He continued to point out that the uncertainty surrounding U.S. trade policies, as well as President Trump's pressure on the Federal Reserve to cut interest rates, has raised doubts among market participants about the credibility of U.S. policies. As a result, the term premium on U.S. long-term bonds has increased, reflecting that investors demand higher risk compensation to hold U.S. Treasury bonds. At the same time, the U.S. dollar is also under depreciation pressure. Although Federal Reserve Chairman Jerome Powell's term does not end until May 2026, and President Trump has no authority to dismiss him early, the Federal Reserve still faces the risk of further politicization in the coming years, which could undermine the credibility of monetary policy and confidence in U.S. assets.

While Trump has attempted to pressure the Federal Reserve to cut interest rates immediately, Chairman Powell's recent comments indicate that the authorities will maintain a wait-and-see attitude in the short term to assess the impact of tariffs on economic activity. Allianz Investment expects that the Federal Reserve will keep interest rates unchanged at the meeting on May 7, marking the third consecutive time the authorities will maintain the federal funds rate target range at 4.25% to 4.5%. However, an increasing number of market views suggest that if the current tariff policies in the U.S. remain unchanged in the coming months, the Federal Reserve will ultimately be forced to take action to address economic downward pressure.

He further noted that due to growing concerns about the economic growth outlook, the short-term interest rate market generally expects the Federal Reserve to cut rates about four times before the end of the year. If the risk of a U.S. recession significantly increases in the coming months, and global trade tensions escalate further, the market may further advance its expectations for the timing of rate cuts. The uncertainty surrounding trade policies will continue to be a source of volatility in financial markets in the coming months