Dollar Weakness and Trade Truces: Why EMEA Assets Are Poised for a Breakout

The interplay of easing U.S.-China trade tensions and a structurally weaker U.S. dollar has created a rare alignment of forces for investors in European and Middle Eastern/African (EMEA) equities and commodities. With tariffs cooling and central banks globally pivoting toward gold, now is a critical moment to reassess exposure to regions and assets that thrive in this environment. Here's why the stars are aligning—and how to capitalize.

Trade Optimism: A Fragile but Strategic Shift

The U.S.-China trade talks of June 2025, while far from resolving all disputes, have introduced a critical pause in the tariff war. The Geneva and London Agreements—which reduced tariffs on rare earth exports and temporarily halted retaliatory measures—mark a tactical retreat from escalation. . While issues like intellectual property and tech controls linger, the respite has injected liquidity into markets. For EMEA investors, this means two things:

1. Reduced Crossfire Risk: European exporters, from industrial giants like Siemens to luxury brands like LVMH, no longer face the same volatility from China-U.S. trade spillover.
2. Reopening of Supply Chains: Sectors like automotive (e.g., Mercedes-Benz) and pharmaceuticals (e.g., Merck) benefit as cross-border logistics stabilize.

The already reflects this: European equities have outperformed U.S. benchmarks by 8% since January, buoyed by weakening dollar dynamics.

The Dollar's Slide: Fuel for EMEA and Commodities

Goldman Sachs' prediction of a 25–30% dollar depreciation over the next 12–18 months is no longer theoretical. The U.S. currency has already lost 10% against the euro and 9% against the yen since early 2025, with further declines likely due to:
- Policy Uncertainty: U.S. fiscal deficits and the potential for new tariffs threaten investor confidence.
- Central Bank Diversification: Global reserves are shifting away from the dollar, with China and Türkiye alone adding 300+ tonnes of gold in 2024.

For EMEA:
- A weaker dollar boosts eurozone exports and reduces debt servicing costs for emerging markets.
- European equities with dollar-denominated revenues (e.g., Merck (MRK), Alphabet (GOOGL)) see earnings accretion, as profits convert back to stronger euros.

The shows this dynamic: 40% of its sales are in the U.S., but its European and Asian operations now drive margin expansion as the euro gains. Similarly, Alphabet's European ad revenue—untethered from U.S. tech export controls—has surged 12% YTD.

Gold: The Ultimate Hedge in a Fractured World

With gold trading at $3,373/oz on June 19, 2025—a 30% jump from 2024 lows—the metal is nearing its $3,500/oz psychological threshold. Three forces are driving this:
1. Central Bank Buying: Over 900 tonnes of purchases in 2025, led by China and India, are structural bids.
2. Inflation and Safe-Haven Demand: Stagflation fears (high inflation + weak growth) make gold a must-hold for portfolios.
3. Dollar Weakness: A 25% dollar decline would mathematically push gold to $3,500+ by year-end.

The **** shows a clear path: $3,400 is near-term resistance, but a breach could unlock a rally to $3,600.

Risks to the Rally—and How to Navigate Them

• Tariff Volatility: China's export controls on critical minerals and U.S. tech bans could rekindle trade friction.
• Inflation Lingering: If core inflation stays above 3%, the Fed might delay rate cuts, buoying the dollar temporarily.
• Geopolitical Whiplash: Conflicts in the Middle East or Eastern Europe could spike gold prices but destabilize equities.

Mitigation Strategy:
- Diversify by Sector: Pair gold (e.g., SPDR Gold Shares (GLD)) with dollar-hedged equities like Roche (RHHBY) or TotalEnergies (TTE).
- Use Options: Cap downside risk on European stocks with put options while maintaining upside exposure.

Final Call: Time to Act—But Stay Vigilant

The combination of trade optimism, dollar weakness, and gold's ascent creates a sweet spot for EMEA and commodity investors. Now is the time to:
1. Add European Cyclical Stocks: Focus on industrials (e.g., Siemens (SIE)) and tech leaders (e.g., ASML Holding (ASML)) with global exposure.
2. Build a Gold Floor: Allocate 5–10% of portfolios to physical gold or ETFs, targeting $3,500/oz.
3. Avoid Overconcentration: Keep 10–15% of capital in U.S. dollar-hedged ETFs (e.g., DBUSDQ) to hedge against policy surprises.

The road ahead is not without potholes, but the tailwinds are too strong to ignore. In a world of fractured alliances, EMEA assets and gold are the ultimate survivors—and opportunists.

Data as of June 19, 2025. Past performance does not guarantee future results. Always consult a financial advisor before making investment decisions.