Synopsis:

CIBC maintains a strong bearish view on the US dollar over the medium and long term, driven by the belief that the Trump administration’s recent policies will hurt US productivity and investment flows will gradually shift away from US assets.

Key Points:

• Medium-to-Long-Term USD Bearishness:

  • Trump’s trade policies will create a near-term stagflationary shock but longer-term drag on US productivity.

  • The US move away from comparative advantage will weaken growth relative to peers, especially Europe.

  • European expansionary fiscal policy will boost investment and growth, contrasting US underperformance.

• Crowded Long US Position Unwinding:

  • The global overweight to US assets is massive, with the MSCI ACWI index 65% weighted to US equities, versus 29% on a GDP-weighted basis.

  • High US valuations (higher P/E ratios) will likely encourage global investors to rebalance away from US assets over time.

• Currency Targets for End-2025:

  • EUR/USD: 1.16

  • USD/JPY: 131

  • USD/CAD: 1.37

Conclusion:

CIBC expects the USD to face sustained pressure as structural investment flows rotate away from the US. While the process will take time due to inertia in asset allocations and uncertainty about the full impact of policy shifts, they maintain high conviction that USD will weaken further, particularly against the EUR, JPY, and CAD.