A weak US dollar in the first six months of 2025 has been a boon for foreign currency denominated assets. By the end of June, the US dollar had gone down about 9% (as measured by DXY), and yields on many foreign bonds stayed high. Investors avoiding exposure to the US dollar did well.
But, as of July the situation may have changed. Since the beginning of July, the currencies of Etherfuse’s stable bonds have mostly declined against the US dollar: The UK pound was the worst at -3.42%, the Brazilian Real -2.62%, the Euro -2.45%, and the Mexican peso unchanged. The dollar index, DXY was up 2.76%
This begs the question: Is the strategy of investing in foreign stable bonds for a yield pick-up over? Put another way, has the value of the US dollar versus foreign currencies bottomed? Is it onwards and upwards for the US dollar from here?
If an investor believes the US dollar is going to strengthen, they may want to stop chasing yields in countries like Mexico and Brazil, and back off forex exposure in the Euro and the UK pound.
The issues that pressured the US dollar are well known. Inconsistent policy surrounding tariffs, rising US debt, concerns over inflation from tariffs to name a few. More concerning long-term is the fact that there is a growing trend for foreign companies that buy goods from the US asking to be paid in their local currency, because they do not want to own the US dollar. For example, a lumber company in the Midwest now converts US cash into Euros before paying for hardwood imports from Europe; they get a 2% discount for paying in Euros. For the US dollar to appreciate investors all over the world must have confidence in the US economic fundamentals. As of now, confidence does not seem apparent.
As we come closer to August 1, one of the days President Trump said tariffs would be levied, foreign currencies have weakened. The big move was on the day the trade deal with Europe was struck. In the wake of that deal being announced, the DXY went up 1%.
The US dollar’s upward move in July may be a relief rally driven by tariffs that are not as severe as initially thought, more bark than bite. But just because the tariff outcome result was not as bad as anticipated does not mean the currency is going to make a sustainable move upwards. Relief rallies are not trend reversals.
There are a couple of ideas holding dollar appreciation back, even if tariffs are not as bad as expected.
First, the US does not want the US dollar to strengthen. A stronger US dollar makes exports more expensive and imports cheaper. In this scenario, imports would grow faster than exports and make the trade deficit worse.
Second, debt is still a problem. The US debt is reaching its ceiling. Yes, President Trump is pressuring Chairman Powell to lower interest rates, and if that happens the amount of interest the US pays on its debt will go down. But this is just kicking the can down the road. Until congress increases the debt ceiling, debt will continue to be a problem, a problem that could derail the US dollar
Third, although there is clarity on tariffs, no one knows what the impact on inflation will be. Until this is clear, the US dollar will have a hard time appreciating.
So, what currencies still make sense to buy versus the US dollar if the US dollar stays the same or weakens.
The Mexican peso may be at the top of the list. The Etherfuse CETES has an APY of 6.51% and the currency barely moved in July. A 4 plus percent pick-up in yield versus the US dollar with currency stability makes sense.
The Brazilian Real bonds might be a good choice. The Etherfuse Tesouro has an APY of 13.06%. which is 8.7% more than US dollar short-term yields. There is concern that the US will place a 50% tariff on Brazil, but if they do not, Etherfuse Tesouros will be a hit.
Probably best to hold off on exposure to the Euro and UK right now because the yields are low
In conclusion a portfolio of 60% CETES and 40% Tesouros seems to make sense for investing or staking or whatever you want to do with it.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
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