Chart of the Week

The past few weeks have seen the emergence of a relatively unusual phenomenon — U.S. equities, long-term U.S. Treasuries, and the U.S. dollar have all fallen. During volatile periods, the high quality of the U.S. dollar might be expected to cause appreciation as a perceived safe haven during uncertain times, but this has not held so far in 2025.

As the chart above shows, the two main drops in the dollar have accompanied spikes in the CBOE Volatility Index, or the VIX, in late February and early April. These spikes have also accompanied concerns of an economic slowdown, which has increased financial-market expectations of Federal Reserve (Fed) rate cuts and impacted expected interest-rate differentials between the U.S. and Europe.

Despite concerns about a change in the dollar’s status as the world’s reserve currency, we do not see its recent fall as part of a structural change and note that it remains above historical averages. We believe the U.S. dollar is positioned for a rebound from current levels if economic concerns are resolved, and we would also expect to see it pushed still higher by year end alongside an improvement in the U.S. economic outlook and sustained interest-rate differentials.

Forecasts are based on certain assumptions and on views of market and economic conditions which are subject to change.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Currency risk is the risk that foreign currencies will decline in value relative to that of the U.S. dollar. Exchange rate movement between the U.S. dollar and foreign currencies may cause the value of a portfolio's investments to decline.

CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

U.S. Dollar Index measures the value of the U.S. dollar relative to majority of its most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.

An index is unmanaged and not available for direct investment.

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