July 2025
Market Commentary
Trump's Dollar Devaluation
(4 min read)
17th July 2025
In recent years UK investors have had a positive experience investing in the US, benefitting from an outperforming stock market but also from a strong US Dollar.
Since the Brexit ‘adjustment’ GBP is broadly unchanged against the EUR. The charts below show the history of the US Dollar over a long period (50 years) and illustrates its strength not only against GBP (Chart 1) but also on a trade weighted basis (Chart 2) since the start of the Great Financial Crisis (GFC) in 2008.
The main reason for the US Dollar’s strength is that global capital flows have been chasing superior returns in the US driven by consistently stronger economic growth, a more dynamic choice of investments in the stock market and a general sense of what has become known as ‘US exceptionalism’. This has occurred at the same time as sclerotic growth and capital markets in other parts of the world, particularly in Europe. In the UK, for years we have seen wealth managers reducing exposure to the domestic UK market to historically low weightings in favour of global strategies.
Given the significant divergence in valuations, we now view the UK market as a good opportunity.
Chart 1
British Pound vs US Dollar over 50 years (1975-2025)
Source: Trading Economics
While the trade weighted US Dollar index (Chart 2) has recently corrected from a high of 110 to 98, we think this might be the start of a longer-term trend and a deliberate policy tool by the Trump administration.
Since coming into office, a key priority of the President has been to address the trade deficit with the rest of the world. Alongside tariffs, an effective US Dollar devaluation would improve the global competitiveness of the US and in turn narrow the trade deficit. In addition, although the settings at the current headline level are likely to ultimately settle down at lower rates, new tariffs will impact economic growth negatively and imply a lower interest regime ahead. This would also be a negative driver for the US Dollar.
The timing of interest rate cuts, however, does remain uncertain given the stubbornness of inflation. The current political backdrop creates uncertainty and the relative stock market valuations favouring investing outside the US could reverse some of those capital flows we have seen in recent years.
In addition, now that both Houses of Congress have passed Trump’s ‘Big, Beautiful Bill’, markets will continue to be very focused on the ever-expanding US budget deficit and the impact that could have on the status of the US as a safe haven.
Chart 2
Dollar Index over 50 years (1975-2025)
Source: Trading Economics
What does this mean for client portfolios?
At our recent Investment Committee we decided to reduce exposure to the US Dollar by hedging our gold exposure and some of our global equity holding back into the base currency GBP.
We are also looking to reduce some of our US equity exposure in favour of other markets with more compelling valuations.
Peter Geikie-Cobb | Head of Investment Research
Montgomery Associates
Glossary
www.montgomeryassociates.co.uk/glossary
Risk warning
This article and other articles on www.MontgomeryAssociates.co.uk does not constitute an offer or invitation in respect of investments described, nor should it be interpreted as advice or a recommendation. You should contact your financial adviser or accountant for advice relating to your circumstances. The opinions and information in this article have been prepared from sources believed to be reliable at the time and are given in good faith. The information and opinions expressed in this document represent our views at the time of preparation and may be subject to change. The value of an investment and any income from it can fall as well as rise and you may not get back the amount you originally invested.
Past performance is not a guide to future performance.
