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The Asset Class: Jason Borbora-Sheen · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  In 2025, the dollar was perceived by many to be embarking on a long-term bear
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  market.
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  In 2026, of course, conditions have changed and so have some perceptions.
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  In fact, the dollar index over 52 weeks is actually up four and a quarter percent.
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  With me is Jason Borber-Sheen, Portfolio Manager at 91 in London.
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  Jason, the obvious answer to me anyway, to the dollar's strength, is seemingly
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  unthinkable.
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  the war on Iran and now the Fed under a new chairman.
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  Is it that easy, though?
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  I think it's a changing balance of factors.
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  So I'm not sure the war in Iran put much of an impulse under the dollar, but the
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  new Fed chairperson seems to have.
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  So in a all else equal environment, I think when the conflict began in March,
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  you had oil prices rally, you saw that countries like the US who are exporting
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  and other countries who are having to
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  import should probably on balance.
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  have benefited on a relative sense.
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  But really, there was a quite muted reaction, a quite inconsistent reaction
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  from the dollar, just looking at technical
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  factors like how correlated it was to, for example, days when oil was rallying or
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  equities were selling off.
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  What has seemingly though changed a little bit more recently, is that the relative
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  rate
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  differentials have become somewhat more supportive.
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  By that we mean that some of the banks European, UK, relative to the Fed,
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  have seen expectations of their hiking rates being reduced somewhat.
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  So that's occurred as oil has come down.
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  And I think as the end towards the conflict, obviously related to that point,
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  has become somewhat more clear.
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  The last point you raised, or the second point you raised on the Fed, I think is
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  possibly one of the most important, which is that there was a perhaps
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  stale narrative around the dollar debasement trade.
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  from the latter part of last year, which was something like the idea that the US
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  administration was eroding
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  institutional trust, and that consequently, the dollar was on a sort of
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  downward spiral due to geopolitical forces.
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  I think that that trade, that concept and narrative has never been an easy one,
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  actually, to just follow and hold.
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  So there are going to be points of time within that when it's tested.
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  And it seems as though from the sort of positioning in sentiment data we follow.
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  it had become long in the tooth, and that was at risk of a reversal.
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  And I think the first press conference from Kevin Walsh did light a fire under
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  that because it gave a
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  fairly orthodox, credible perspective that was then reconfirmed by the likes of the
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  US Treasury Secretary
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  Scott Besant in terms of the need to create credible policymaking from the Fed.
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  So it took out some of the idea that there would be a...
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  unorthodox or unnecessary rate cuts.
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  And it puts some support under the dollar.
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  It's very interesting that first meeting that was stewarded by Kevin Walsh, because
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  I think there were five points that
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  the committee raised that would change the way that the Fed does things, change the
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  way that they look at data, change the way that they
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  communicate as well.
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  Was that terribly important to you?
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  To an extent.
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  So I think we have now moved into a different era of monetary policymaking.
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  So the sort of...
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  idol or hero for Kevin Walsh appears to be Alan Greenspan, who's famous for
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  having prided himself on not overly being explicit about what the Fed's plans or
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  decisions were.
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  And I think he is following in those footsteps when you look at how succinct
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  the statements are, what the tenor
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  of his arguments were when asked about the next step by the Fed.
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  it was very clear that he doesn't want to give away too much information.
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  And I think ultimately, you know, these working streams that you allude to, etc,
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  are all part of that, that the belief
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  from many, and perhaps fairly, is that the Fed does need to re-evaluate how policy is
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  made.
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  But that has been given or conveyed to the market in a way which has put some
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  emphasis under the institutional
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  credibility of the Fed, actually.
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  And I think that's why you've seen A lot of the debasement trades, whether that's
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  gold, whether that's cryptocurrencies,
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  actually fade on the back of the press conference.
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  The ECB has raised rates and the US Federal Reserve has more or less said that
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  rates will be flat.
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  In fact, there was one investment bank, I think it was Bank of America, that said
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  that they didn't expect any rate cuts in the United States
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  of America till 2028.
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  So the interest rate differentials that you've spoken about are terribly
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  important.
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  despite the fact...
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  that the ECB has acted early.
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  You say that their forward expectations are rather more dovish whereas the Fed are
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  rather more hawkish.
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  Is that the case?
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  Yes.
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  So the relative change in terms of what markets are pricing for the Fed and for
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  the ECB has been in favour
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  more recently, at least from the dollars perspective, I suppose, off the Fed.
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  So there are now, based on the pricing today, one and a half hikes for the
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  Fed priced, interestingly, then followed by cuts into 2027.
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  And then to reverse some of those hikes, and then for the ECB, a lot of the pricing
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  of hikes has been taken out.
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  And so you can argue a sort of circular point here around all the banks have acted
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  with
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  credibility in the face of higher inflation risks from the conflict.
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  But also there seems to have been a resolution or some form of resolution to
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  the conflict leading to lower oil prices.
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  So you have a sort of virtuous dynamic there.
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  But ultimately, yes, you've had a more supportive move in interest rate
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  differentials for the dollar.
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  Is this all in the market?
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  Here we are with the euro dollar as we speak at around about 114, the dollar
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  index at 101.
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  Does the market now say, right, the Fed has set out its case here, and so has the
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  ECB, Bank of England, Bank of Japan,
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  etc.
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  So now we must decide where the dollar is going, because the dollar is, of course,
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  so important for every single asset class
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  globally.
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  Where do you think we go from here, Jason?
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  Yeah, good question.
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  I mean, I think the simple answer is that some of it is more in the price.
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  So we have reduced a little bit of our dollar exposure.
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  But there's two ways that we look at the dollar in our income portfolios.
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  One is as a pure idea of generating profits for our strategies.
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  And that boils down to, as you allude to their relative interest rate
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  differentials, and what's mispriced in terms of
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  where we think the banks are going to get to, as well as then the more cyclical.
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  economic and structural factors that should affect its valuation.
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  I think that side has moved in a small sense more recently, and that's a bit of
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  the driver.
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  You then have this second way in which the dollar plays into portfolios, which is
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  this concept of this as the ultimate defensive asset.
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  And I think that the fact that the debasement trade was weighing against
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  that, the fact that then we've had these moves that seem
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  to counter it, does suggest that the dollar could be back.
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  as a useful diversifying exposure in portfolios.
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  Now, whether that's individuals holding more dollars offshore, whether that is
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  actually having a dollar sort of
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  structure in your portfolio to act as a diversifier, I think combined makes some
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  case for why you would still have some.
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  So the sort of short answer is yes, I think it is slightly more in the price.
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  So we have reduced our exposure, but we are retaining some.
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  For a combination of the two, the fact that the US seems economically still to be
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  outperforming and that you do have this concept that
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  actually as a diversifier it could be back in portfolios.
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  Jason thank you very much for your insight.
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  Jason Bourbrichine is a portfolio manager at 91 in London.
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