Our short-term outlook for the second half of 2025 highlights significant shifts in the global rewiring of trade and financial markets, alongside historic changes in tariffs and fiscal policy. These developments carry important implications for long-term investors, particularly pension funds, for which we see three key investment themes.
First, inflation remains a central theme. History shows inflation can be persistent and unpredictable, especially amid geopolitical tensions, shifting trade policies, and evolving fiscal stances. The impact of tariffs on prices is still uncertain, and with the Federal Reserve’s data-dependent approach, interest rate easing may be delayed. For investors, it will be key to review the fixed income allocation favouring investment-grade credit in Europe, actively managing duration and exploring opportunities in inflation linked bonds.
Second, we observe a structural shift in the US dollar’s role (Figure 1) and a likely moderation of US exceptionalism. The dollar’s traditional safe-haven status is challenged amid rising uncertainty over long-term Treasury yields, driven by growing deficits linked to recent fiscal policies. This environment calls for a reassessment of geographic diversification and currency exposures within portfolios.
Global investors have already started to reconsider their hefty US exposure and are looking at hedging currency risks. We believe this trend is set to continue, as we expect a weak USD trend moving forward due to high fnancing needs and reduced appetite from foreign investors.
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