US dollar may get even stronger, more pain in store for markets

The US dollar and bond yields are likely to remain elevated at least through the first half of 2025, driven by uncertainties around trade tariffs and inflationary pressures, says Chetan Seth, APAC Equity Strategist at Nomura.

“Sometime, maybe in Q1 (January-March) or Q2 (April-June), we will reach the stage of peak pessimism, when the market will have much greater clarity on the direction of tariffs. We’ll probably have peak dollar and bond yields. That is when we can be a bit more constructive on Asia, including India,” he said.

Seth explained that if tariffs ranging from 10% to 60% are imposed by Trump, they could lead to an 80 basis points (bps) rise in US inflation, further boosting the dollar.

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The dollar index (DXY) has already climbed over 109, while US 10-year treasury yields stand at 4.609%, making US assets increasingly attractive to global investors. A stronger dollar has significant implications for emerging markets. For India, a weaker rupee erodes foreign investors’ returns, reducing the appeal of Indian equities.

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India remains relatively strong compared to other Asian markets. The political instability in Korea, weak fundamentals in China, and currency concerns in Southeast Asia make India an attractive option within the region. However, he warned that as long as the rhetoric around tariffs and trade uncertainty persists, Indian equities, like other emerging markets, could face continued pressure.

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