Fx Usd

1. Overall Summary

Across the usable sources, the dominant 2026 narrative is a post‑peak, softer USD, not a collapse: baseline is modest depreciation versus majors and EM, with the sharpest splits about how fast and how reliable that weakness will be. UBS explicitly bakes in broad G10 appreciation vs USD by end‑2026 (e.g., EURUSD 1.20, AUDUSD 0.70) UBS p.60], and BofA/RIC sees DXY around 95 by end‑2026 as part of a secular dollar down‑cycle BAML p.2–3]. KKR and JPM agree the dollar is 10–15% overvalued on REER/PPP and has likely peaked, but expect gradual, multi‑year mean reversion rather than a sharp 2026 move KKR p.71–73; JPM p.8]. MS and T. Rowe treat dollar depreciation as a policy tool and an explicit tailwind to equity earnings and EM/local bonds into 2026 MS p.9, p.22; TRowe p.15, p.17–18]. By contrast, HSBC and Goldman emphasize high FX uncertainty, with HSBC formally neutral USD and focusing on diversification, not a big directional bet HSBC p.24–25; Goldman p.8, p.23]. Decision‑useful anchors: DXY in a 90–95 band in the more bearish/bull scenarios (BofA at ~95 BAML p.2–3]; MS bull case ≤90 MS p.22]), Fed funds around 3–3.25% by end‑2026 Barclays p.19; UBS p.60; Goldman p.23], and multiple PPP estimates of 10–15% USD overvaluation that frame a decade‑long bearish bias KKR p.71–73; JPM p.8; Stifel p.31].

2. Where Analysts Agree

The era of extreme USD strength is over; the peak is likely behind us. KKR says the dollar has "peaked for this cycle" and is ~15% over fair value on a real effective basis KKR p.71–73]; JPM calls it ~10% overvalued on trade‑weighted PPP JPM p.8]; Stifel's PPP work implies negative 10‑yr returns for DXY from current levels Stifel p.31]; BofA flags the real trade‑weighted dollar as the strongest since 1985, with downside ahead BAML p.3].

Baseline into 2026 is a non‑strong / softer USD backdrop. UBS expects USD weakness to persist at least into H1‑26 with all G10 FX appreciating vs USD by end‑26 UBS p.42–43, p.60]; T. Rowe sees the dollar's 2025 decline "likely to extend into 2026" TRowe p.15]; Goldman, Barclays and BlackRock repeatedly describe the dollar as "softening" or "subdued" and a tailwind to EM Goldman p.20; Barclays p.15; Blackrock p.14, p.16].

A softer USD is explicitly supportive for EM and non‑US assets. BofA links weaker USD and "de‑dollarization" to upside in EM debt, commodities and European/Chinese equities BAML p.3, p.17]; UBS highlights a weaker USD as support for Asia ex‑Japan and EM equities and EM local/hard‑currency debt UBS p.23, p.32, p.42]; T. Rowe and Barclays both cast dollar weakness as a tailwind for EM stocks and local‑currency bonds TRowe p.17–18; Barclays p.15]; JPM and KKR tie ongoing USD mean‑reversion to stronger relative returns from international and EM equities JPM p.2, p.8; KKR p.22, p.78].

Fed easing toward ~3% policy rate is central to the soft‑USD story. Barclays notes markets price Fed just above 3% by end‑2026 Barclays p.19]; Goldman's scenarios center on 3.0–3.25% in a soft‑landing baseline Goldman p.23]; UBS forecasts 3.33% in Dec‑26 UBS p.60]; BofA's rates team similarly sees a 3.0–3.25% terminal after a dovish Fed chair transition BAML p.17]. Narrowing US‑RoW rate differentials are widely cited as a USD headwind KKR p.73; UBS p.42].

Euro appreciation is a common element. UBS targets EURUSD 1.20 by end‑2026 UBS p.60]; BofA sees 1.22 BAML p.2]; KKR notes the euro is ~20% undervalued on PPP and sees room for appreciation KKR p.44]; T. Rowe explicitly warns of "currency‑driven cuts" if EUR >1.20 TRowe p.4]. Barclays also flags a "stronger euro" as a drag on eurozone growth Barclays p.9].

FX is an important portfolio lever (hedging & diversification). Goldman stresses that "shifting asset correlations and dollar dynamics make strategic FX hedging a key consideration" Goldman p.10]; HSBC's headline FX call is to diversify away from USD rather than time it HSBC p.24]; UBS advocates aligning currency mix with future spending and diversifying across strong‑fundamental currencies UBS p.43]; BlackRock points to FX uncertainty as a reason to be neutral on EM local debt and broad EM equities Blackrock p.14–16].

3. Where Analysts Disagree

Magnitude and pace of USD weakness into 2026. BofA has a fairly punchy call (DXY ~95 by end‑26, broad EM and EUR/CNY strength) BAML p.2–3, p.19]; UBS similarly embeds multi‑percent G10 spot gains vs USD through 2026 UBS p.43, p.60]; MS's bull case is even more aggressive with DXY "90 or below" MS p.22]. KKR, JPM and Stifel, by contrast, emphasize gradual, decade‑long mean reversion from a 10–15% overvaluation, expecting the near‑term dollar to be flat to slightly down KKR p.71–73; JPM p.8; Stifel p.31]. HSBC and BlackRock are explicitly cautious, either neutral (HSBC) or saying they "don't see a clear direction for the U.S. dollar" tactically (BlackRock) HSBC p.24; Blackrock p.14].

Confidence in directional calls vs "soft‑USD but uncertain." UBS, BofA, T. Rowe, JPM and KKR present weaker‑USD as a base‑case, investable theme into and beyond 2026 UBS p.42–43; BAML p.3, p.17; TRowe p.15–18; JPM p.2, p.8; KKR p.71–73]. Goldman, BlackRock and HSBC repeatedly stress FX ambiguity, using softer‑USD as background but refusing to lean hard into directional trades—e.g., BlackRock overweight EM hard‑currency yet neutral EM local because dollar weakening "may not persist" Blackrock p.16]; HSBC formally neutral USD and focused on relative trades (EUR/AUD/SGD/KRW/ZAR vs USD) HSBC p.24–25]; Goldman highlighting that historically USD often stays firm or rallies when the Fed cuts without recession Goldman p.8].

Role and reality of de‑dollarization. BofA elevates "de‑dollarization" to a core H2‑2020s theme, explicitly calling it positive for EM and commodities BAML p.17] and noting the USD share of reserves is falling BAML p.25]. UBS likewise cites diversification away from USD reserves as a structural headwind UBS p.42], and HSBC shows gold's reserve share rising as USD's declines HSBC p.25]. KKR, however, dismisses de‑dollarization as overblown, pointing to flat USD reserves around $6.8tn and the dollar's still‑dominant role KKR p.72]. BlackRock's stablecoin discussion arguably cuts the other way, highlighting structural reinforcement of global dollar usage via digital dollars Blackrock p.11].

Who benefits most from a weaker USD: US vs non‑US. BofA, UBS, JPM, KKR and Stifel see dollar softness primarily as a relative tailwind for international and EM assets (equities, debt, commodities) versus US BAML p.3, p.17; UBS p.23, p.32; JPM p.2, p.8; KKR p.22, p.60, p.78; Stifel p.31, p.42]. MS, in contrast, uses weaker USD mainly as a tailwind for US multinationals' earnings, while still preferring US equities over non‑US despite the FX setup MS p.21–22, p.24]. HSBC focuses more on FX carry and diversification (EUR, AUD, KRW, ZAR, EM local debt) than on a big US‑vs‑RoW equity rotation HSBC p.21–25].

Interpretation of USD weakness: policy tool vs side‑effect. MS is explicit that a weaker currency is part of US trade and debt‑management strategy in a "run it hot" regime MS p.9, p.11–12]. BofA interprets future USD weakness as a sign of successful global rebalancing of imbalances BAML p.3]. KKR/JPM frame it more as valuation mean reversion plus narrowing rate spreads KKR p.71–73; JPM p.8]. Goldman and HSBC treat dollar moves mainly as an input into EM and rates strategy rather than as a policy objective Goldman p.6–8; HSBC p.24–25].

4. Core Narrative by Sub-Areas

A. Clearly bearish / rebalancing camp (BofA, UBS, T. Rowe, JPM, Stifel, MS‑bull)

BofA/RIC: Calls the dollar the "key macro variable" and argues that from its strongest real level since 1985 and a –$26tn US NIIP, the only sustainable path is down, with DXY around 95 by 2026 and "de‑dollarization" a central H2‑2020s theme BAML p.3, p.17]. Their FX deck shows EURUSD 1.22, USDCNY 6.8, and stronger MXN/BRL by 2026 BAML p.2, p.19]. This underpins a rotation out of "US tech & Treasuries" into EM debt, commodities, and European/Chinese cyclicals BAML p.1, p.3].

UBS: Foresees USD weakness persisting into H1‑26 on Fed cuts toward ~3% and twin deficits, with a "strong USD recovery unlikely" UBS p.42]. Their forecasts show all G10 FX higher vs USD by end‑26 (e.g., EUR 1.20, GBP 1.35, AUD 0.70, USDJPY 146, USDCNY 6.90) UBS p.60], and a scenario table where EURUSD is higher in every macro scenario UBS p.48]. EM/Asia equities and EM debt are expressly expected to benefit from this softer USD UBS p.23, p.32].

T. Rowe Price: Treats ongoing USD weakness as a core tactical premise: "the U.S. dollar's decline through most of 2025 is likely to extend into 2026" TRowe p.15]. The Asset Allocation Committee explicitly overweights unhedged local non‑US bonds to capture FX gains TRowe p.15] and cites weaker USD as a tailwind for EM stocks, EM local bonds, real‑asset equities, and non‑US small caps TRowe p.17–18]. EUR strength is taken seriously enough that ECB "currency‑driven cuts" are seen if EURUSD >1.20 TRowe p.4].

JPM: Points to a 10% PPP overvaluation and notes that 2025's weaker dollar already added 7 percentage points to international equity returns JPM p.8]. The executive summary explicitly assumes a "continued weaker dollar" as part of the case for another strong year in international equities and Asian EM in 2026 JPM p.2]. EM local‑currency debt is favored for carry as investors diversify away from US‑centric risks JPM p.5].

Stifel (structural): Projects a –2% annual DXY decline from ~99 to ~80 by the first half of the 2030s, based on PPP Stifel p.31]. They argue that a 2025–35 dollar down‑cycle will look like 2000–10—bad for US Growth vs Value and good for value, small caps, commodities, and non‑US equities Stifel p.31, p.42]. This is less a 2026 trading call than a decade‑long regime map, but it reinforces the medium‑term bearish tilt.

MS (bull scenario): In its bull case, MS explicitly has "DXY to 90 or below" as lower front‑end rates reduce demand for USD assets, calling this a tailwind for US multinationals MS p.22]. Even in the base case, weaker USD is described as part of a "run it hot" regime—currency depreciation is one lever to manage debt and keep inflation up while repressing rates MS p.11–12, p.24].

B. Gradual/tempered bear camp (KKR, Barclays, JPM again)

KKR: Agrees the dollar has peaked and is ~15% overvalued, but stresses that prior overvaluation episodes were followed by 10‑year bear markets, not crashes KKR p.71–73]. They expect the dollar to be flat to slightly down through 2027 as narrowing rate differentials are partly offset by strong portfolio and FDI inflows (~$880bn portfolio, ~$400bn FDI TTM) and still‑solid US fundamentals KKR p.71–73]. They explicitly reject "disorderly unraveling" and think de‑dollarization fears are overstated given stable USD reserves KKR p.71–72]. FX tailwinds are baked into 5‑yr return forecasts for Europe/Japan but are modest in the 2026 window KKR p.78].

Barclays: Only hints at FX but aligns directionally: it notes a "stronger euro" drag on eurozone growth Barclays p.9] and a "softer dollar" as a potential EM equity tailwind as US growth normalizes and policy eases Barclays p.15]. However, they flag 2026 as "exceptionally unclear," signaling low confidence in a precise USD trajectory Barclays p.6].

JPM: Though structurally bearish, JPM is explicit that the macro backdrop is "muddled as ever" and that near‑term volatility can override valuation JPM p.12]. They frame weaker USD as a durable tailwind to international allocation, but not as a one‑way 2026 trade.

C. Neutral / high‑uncertainty camp (HSBC, BlackRock, Goldman)

HSBC: Explicitly neutral USD, expecting it to be volatile but sideways in early 2026 as offsetting forces (Fed path, data gaps from shutdown, fiscal/institutional uncertainty) balance HSBC p.24]. They recommend FX diversification and prefer EUR/AUD/SGD/KRW/ZAR vs USD, but simultaneously see scope for a later‑year USD rebound if the Fed halts cuts and US cyclicals outperform HSBC p.24–25]. EM FX is attractive but selective; they caution that as the Fed's easing cycle ends, yield differentials will narrow and some EM FX may have limited appreciation room HSBC p.24–25].

BlackRock: Notes that EM local bonds already enjoyed a "softer US dollar" tailwind in 2025 and think that phase is ending, with the dollar direction now "unclear" Blackrock p.14, p.16]. They overweight EM hard‑currency debt partly on a weaker‑USD / lower‑US‑rates backdrop, but are neutral EM local and EM equities because they don't see a "clear direction for the U.S. dollar" Blackrock p.14, p.16]. Structurally, they highlight dollar‑linked stablecoins as increasing global dollar access, countering de‑dollarization narratives Blackrock p.11].

Goldman: Characterizes the current USD as soft/subdued and supportive for EM, but warns that historically the dollar often rallies or stays flat when the Fed cuts without recession Goldman p.8]. Their scenario grid has USD "rangebound" in a soft landing, stronger if growth re‑accelerates, and weaker vs safe havens but stronger vs EM in a hard landing Goldman p.23]. They lean on a soft‑USD baseline for EM debt and equities but emphasize FX hedging and policy/fiscal risks rather than a clear directional FX trade Goldman p.6–8, p.19–20].

D. Structural role & usage (de‑/re‑dollarization, digital dollars)

BofA and UBS see reserve diversification and twin deficits as structural USD headwinds; UBS's reserve‑share chart shows USD's share falling toward the mid‑40s% UBS p.42], and BofA emphasizes de‑dollarization as a secular theme aiding EM and commodities BAML p.17, p.25].

KKR counters that USD reserves are flat at $6.8tn, so talk of de‑dollarization is "overblown"—they expect the dollar to stay the core reserve currency even as it cheapens KKR p.72].

HSBC and BlackRock introduce nuance: HSBC shows gold's reserve share rising as USD's falls, treating gold as a hedge for weaker USD HSBC p.24–25], while BlackRock highlights USD stablecoins expanding digital dollar usage, structurally supporting USD demand, even if the FX level drifts lower Blackrock p.11].

5. Key Conditional Risks

Fed path / inflation surprises. A less‑dovish Fed—because inflation re‑accelerates or growth holds up—would keep US real rates high and support USD, challenging weaker‑USD theses. Goldman explicitly notes that in non‑recession cutting cycles USD often rallies Goldman p.8], and UBS warns that a return of US inflation could force tighter policy, undercutting their soft‑USD base case UBS p.47]. Conversely, a hard‑landing scenario with aggressive Fed cuts could weaken USD vs JPY/CHF but still see it strengthen vs EM FX Goldman p.23].

Risk‑off shocks and geopolitics. Severe risk events (US‑China escalation, energy shocks, EM crises, major geopolitical conflicts) would likely produce flight‑to‑quality flows into USD assets, at least temporarily, overriding PPP and twin‑deficit arguments. UBS and BofA both note that financial repression and geopolitical fragmentation can spike FX volatility and safe‑haven demand UBS p.36–38, p.47; BAML p.18].

US fiscal/credibility dynamics. BofA, Goldman, UBS, T. Rowe and MS all highlight large US deficits and debt; if markets react with a fiscal scare, USD could either weaken (if creditworthiness is questioned) or strengthen short‑term in a global risk‑off. Gold‑bullish stances at HSBC and BofA are partly premised on such fiscal concerns HSBC p.24–25; BAML p.10, p.18].

Outcome of "de‑dollarization" vs digital‑dollar adoption. If central banks accelerate reserve diversification away from USD beyond the slow trend UBS and HSBC show, structural USD demand could erode faster than KKR assumes UBS p.42; HSBC p.25; KKR p.72]. Conversely, rapid growth and institutionalization of USD‑stablecoins (BlackRock) could sharpen global demand for USD assets despite FX depreciation Blackrock p.11].

Non‑US policy slippage. EUR and JPY appreciation assumptions rest on reasonably smooth ECB/BoJ paths and European/Japanese fiscal execution. Renewed euro‑area crisis, French/Italian instability, or BoJ backtracking could cap or reverse EUR/JPY gains, forcing a less weak or even stronger USD than UBS, BofA, T. Rowe, or KKR envisage KKR p.39–40, p.44, p.74; TRowe p.4–5; UBS p.42]. EM‑specific shocks (e.g., fiscal or political reversals in Mexico, South Africa, China) would hit EM FX even if DXY trends lower HSBC p.23, p.25; UBS p.43; BAML p.17].

6. Bottom Line

Taken together, the credible houses skew toward modest USD depreciation into 2026, underpinned by Fed cuts to ~3–3.25%, valuation overhang (10–15% overvaluation), and widening use of non‑USD assets, but they do not see a disorderly collapse or a one‑way trade KKR p.71–73; JPM p.8; UBS p.42, p.60; BAML p.2–3]. The investable implication is to tilt toward unhedged or partially hedged non‑US and EM exposures and selective longs in EUR/AUD/high‑carry EM FX, while keeping risk controls for scenarios in which US rates stay high or global shocks temporarily re‑flate the dollar.

USD baseline direction and strength — overall soft/strong/uncertain USD bias vs recent years

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	Recent conditions reflect a softer/weaker U.S. dollar versus prior years, which has already aided EM assets, but forward-looking guidance characterizes the dollar outlook as highly uncertain, with “no clear direction” and explicit doubt that recent weakening will persist [p.14, p.16]. FX is treated as a background macro driver rather than a primary asset-class call, implying only a mild soft-dollar bias that is largely priced in [p.14–16].
Goldman Outlook - Summary	USD has already undergone a significant depreciation in 2025, with “softening,” “subdued” and “ongoing… softness” characterizing the baseline into 2026, implying a non-strong USD bias versus recent years [p.5, p.7, p.14–15]. This move created a divergence in Euro terms “not seen in over two decades” [p.5].
Goldman Outlook	Dollar exceptionalism has faded, with recent “significant depreciation” vs 2022–23 and a baseline of a more subdued/soft USD, though performance in easing cycles is historically mixed and can be firm or stronger when cuts occur without recession [p.8, p.19–20, p.24–25]. Fiscal and political risks are framed as potential additional headwinds that could weigh on the dollar if they unsettle markets [p.6–7].
Barclays Outlook	A relatively softer USD bias is envisaged into 2026 as US growth normalises and monetary policy eases, while a stronger euro is flagged as a drag on eurozone growth, implying some reversal of prior USD strength [p.9, p.15]. The overall 2026 macro outlook is described as “exceptionally unclear,” so the softer-USD bias is conditional rather than high-conviction [p.6].
HSBC Outlook	USD is expected to be volatile but broadly range‑bound in the near term, leading to an explicitly neutral stance with no strong directional bias and a focus on FX diversification rather than a big USD under‑ or overweight [p.24–25]. Recent weakness from Fed cuts and labour concerns could give way to some later‑year USD rebound if US cyclicals outperform and cuts end, but cross‑currents and data uncertainty prevent a clear soft or strong USD call relative to recent years [p.24].
JPAM Outlook	n.a.
JPM Outlook	U.S. dollar is still about 10% overvalued versus PPP-based fair value on a trade‑weighted basis, with its trend having shifted to a weaker path that has already boosted international equity returns in 2025 and is expected to remain a tailwind into 2026. A gradual mean‑reversion/weaker‑USD bias over a multi‑year (10–15 year) horizon underpins expectations of continued capital reallocation away from U.S. assets. [p.2], [p.8], [p.8 fn.3], [p.12]
KKR 2026 Outlook	USD has likely peaked this cycle and is about 15% overvalued on a real effective basis, with a baseline of flat to slightly weaker through 2026–27 and a gradual, decade‑long mean reversion rather than a disorderly unraveling [p.71–73]. Over the next decade, the dollar is expected to drift from its current overvaluation towards or even below fair value, implying a softer bias versus recent years but still underpinned by solid fundamentals and flows [p.71–73].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	USD bias skews to gradual weakening over the next 12–24 months, with the “run it hot” inflationary, debt‑heavy regime and preference for trade rebalancing via FX implying a softer currency than in recent years, and DXY potentially moving to ~90 or below in the bull case [p.9, p.11–12, p.22]. Currency depreciation is framed as part of the macro policy mix and an earnings tailwind rather than a precise forecast, with some dollar weakness also embedded in the base case via FX translation benefits in 2026 [p.22, p.24].
Stifel Outlook	U.S. dollar (DXY) is judged overvalued on PPP, implying a slow, prolonged depreciation of roughly –2% per year from ~99 to about 80 by the first half of the 2030s, similar to the 2000–2010 bear cycle and marking a regime shift away from the strong‑USD, disinflationary post‑2011 period [p.31]. This decade‑long soft‑USD bias is framed as a structural, mean‑reverting move rather than a short‑term trading call [p.31].
TRowe Outlook	U.S. dollar weakness that began through most of 2025 is expected to extend into 2026, driven by Fed rate cuts, sticky above‑target U.S. inflation, and relatively more advanced easing cycles abroad, implying an overall softer USD bias versus recent years and forming a core tactical premise across the outlook [p.3][p.5][p.15]. Real rate erosion from inflation and large U.S. fiscal expansion further anchor a medium‑term depreciation narrative rather than a temporary dip. [p.3][p.14][p.15]
RIC 2026 BAML	USD is described as historically very strong—strongest since 1985 on a real trade‑weighted basis—but with a baseline view for it to weaken into 2026, with DXY forecast near 95 and broad USD softness vs majors and EM FX [p.2–3, p.19]. A gradual dollar decline is framed as part of a “Great Rebalance” and de‑dollarization theme in the H2‑2020s, implying a softer USD bias vs recent years of exceptional strength [p.3, p.17]. Near‑term (3–6 months) stance is Neutral with “mixed risks,” but skewed toward “limited upside” and “greater downside outcomes” for the dollar [p.17].
UBS Year Ahead	US dollar weakness is expected to persist into at least the first half of 2026, with all G10 currencies forecast to appreciate versus USD on a spot basis by end‑2026 and EURUSD rising toward 1.20 [p.42–43, p.48, p.60]. A strong USD recovery is unlikely due to elevated valuation, persistent fiscal and current account “twin deficits,” and ongoing diversification away from the dollar by global institutions and private investors [p.42]. Across all macro scenarios (Tech boom / Solid growth / Disruption), EURUSD ends stronger than current levels, underscoring a consistent weaker‑USD bias versus recent years [p.48].

USD impact on EM assets — how dollar path shapes EM FX, debt, and equities

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	EM local-currency bonds benefitted as EM currencies strengthened against a softer dollar, but that phase is seen as ending and the uncertain USD path underpins a neutral stance on EM local debt [p.14, p.16]. A weaker dollar and lower U.S. rates are key pillars of the overweight in EM hard-currency sovereigns, improving EM credit fundamentals and resilience, while lack of a clear USD direction is a reason to stay neutral on broad EM equities tactically [p.14, p.16].
Goldman Outlook - Summary	A softening/subdued USD is described as a key support for EM assets: it contributed to a “supportive backdrop for emerging market equities” in 2025 with potential for continued positive performance in 2026 [p.7], and it underpins expectations of continued EM monetary easing and strong income/alpha potential in EM debt by lowering inflation risks and external pressures [p.14–15]. The softer dollar is thus embedded as a tailwind for EM FX, local rates, and credit spreads.
Goldman Outlook	A subdued/softening USD, combined with Fed cuts and disinflation, is described as a key tailwind enabling EM central banks to ease “without significant currency weakness,” supporting EM local bonds, external debt, and equities, with 2025’s softer dollar cited as part of a supportive backdrop and further EM gains seen as possible into 2026 [p.6, p.8, p.20, p.24–25].
Barclays Outlook	A softer dollar “could become a tailwind” for emerging market assets as US growth normalises and policy eases, improving financial conditions and supporting EM equities alongside factors such as AI-related supply chains in Asia and improving external balances [p.15]. The linkage is made explicitly for EM equities, with EM FX and local debt only implied via the usual macro channel.
HSBC Outlook	A broadly neutral but potentially volatile USD, underpinned by Fed easing, has supported EM FX and EM local‑currency debt, with EM currencies performing well in 2025 and EM LCD upgraded to a mild overweight for carry and diversification benefits in USD terms [p.21–23, p.24]. Further Fed cuts and reduced trade uncertainty could allow some additional EM FX gains in 2026, but an imminent end to the easing cycle and narrower yield differentials are expected to limit broad EM FX appreciation and make performance more idiosyncratic across currencies, even as EM LCD remains attractive for inflows and high real rates [p.23–25].
JPAM Outlook	n.a.
JPM Outlook	Softer USD conditions, together with improving global fundamentals, are framed as a key tailwind for international and especially Asian EM equities, contributing to strong 2025 performance and “another strong year” in 2026. A weaker and overvalued USD supports allocations to EM assets, with EM debt—particularly local‑currency debt—highlighted for attractive carry in the context of diversifying away from U.S.‑specific risks. [p.2], [p.5], [p.8]
KKR 2026 Outlook	A multi‑year, gradual dollar downtrend from a structurally overvalued level is viewed as supportive for international and EM assets, with FX tailwinds expected to enhance local‑currency returns and underpin a recommendation to increase non‑U.S. equity exposure [p.22, p.60, p.71–73, p.78]. International equities, particularly Europe, Japan, and EM, are expected to outperform U.S. equities in local terms, with a less‑dominant dollar further boosting USD‑based returns [p.60, p.78].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	n.a.
Stifel Outlook	A weaker 2025–2035 USD is linked to a broader macro package—reviving commodity prices and a regime favoring Value, small caps, and non‑U.S. equities over U.S. Growth, implicitly improving prospects for non‑U.S./often EM‑linked markets when commodities outperform the S&P 500 [p.31][p.42].
TRowe Outlook	A weaker U.S. dollar is described as an ongoing and expected tailwind for EM assets, supporting EM stocks alongside easing trade tensions and fiscal stimulus, and benefiting EM local‑currency bonds where USD weakness has already been a positive driver and is “expected to continue,” though longer‑term tariff‑linked fiscal risks could complicate EM FX over time [p.17][p.18]. Overweight stances in unhedged EM local bonds explicitly aim to capture gains from continued USD depreciation via local‑currency appreciation and improved funding conditions [p.15][p.18].
RIC 2026 BAML	A weaker USD and ongoing de‑dollarization are seen as explicitly positive for EM assets, with EM FX, EM debt, and EM high‑dividend equities highlighted as beneficiaries through easier financial conditions, higher yields vs developed markets, and rotation away from “US tech & Treasuries” [p.3, p.10, p.17]. Economic rebalancing and a softer dollar are expected to favor EM and LatAm equities and debt alongside commodities, with explicit FX forecasts showing stronger EM currencies like CNY, MXN, and BRL vs USD by 2026 [p.2–3, p.15, p.19]. De‑dollarization is also tied to stronger commodity prices, further supporting many EM exporters [p.17–18].
UBS Year Ahead	A weaker US dollar is an additional support for Asia ex‑Japan and EM, contributing to better financial conditions, improved capital flows, and stronger performance in EM and Asia ex‑Japan equities alongside solid macro backdrops [p.23, p.32]. Softer USD and Fed easing are tailwinds for EM local and hard‑currency debt, with currency adjustments and diversification becoming more important under rising debt and financial repression [p.32, p.36–38]. USD weakness versus CNY and other EM/Asia FX (e.g., USDCNY moving to 6.90) further underpins the constructive stance on regional assets [p.43, p.60].

Fed path and rate differentials as USD drivers — how policy expectations map into dollar views

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	Expectations of lower U.S. rates and ongoing Fed easing into 2026 are cited alongside a weaker dollar as core supports for EM hard-currency debt, linking easier U.S. policy and rate differentials to a non-strong-dollar environment [p.5, p.14, p.16]. At the same time, risks from sticky inflation, possible renewed growth, and debt-servicing tensions could alter the rate path and, by extension, USD dynamics [p.5, p.7].
Goldman Outlook - Summary	A more dovish Fed stance is listed alongside the softening USD in 2025, linking easier US policy to dollar weakness [p.7], and the baseline of a December cut plus two further cuts in 2026 is directionally consistent with a non-strengthening USD backdrop [p.14]. Upside surprises on US growth/inflation that reduce cuts or prompt hikes are cited as risks that could re-strengthen the dollar and challenge this soft-USD assumption [p.18].
Goldman Outlook	Historical evidence shows USD often rallies or stays sideways when the Fed cuts and no recession follows, implying that soft‑landing easing is not inherently bearish USD [p.8]. Scenario analysis through end‑2026 links Fed funds outcomes and G10 rate differentials directly to USD behavior: hard landing with aggressive cuts and Treasury rallies sees USD weakening vs safe havens, soft landing keeps USD rangebound, while stabilization or re‑acceleration with higher rates corresponds to a stronger USD [p.23–24].
Barclays Outlook	US policy rates are expected by markets to be just above 3% by end‑2026, with the Fed’s focus shifting toward a weakening labour market and scope for deeper cuts if jobless claims rise, a backdrop that underpins the softer-USD narrative for EM [p.15, p.19]. UK and euro area rates are also seen easing (BoE ~3.5%, ECB at 2% with potential for more cuts), implying changing rate differentials, but FX implications are only qualitative and indirect [p.19].
HSBC Outlook	Fed rate cuts have recently weakened USD, but a near‑term halt to the easing cycle would likely allow USD to regain momentum via a renewed yield and growth advantage over other G10 currencies, especially if US cyclicals outperform [p.24]. Expectations of further but diminishing Fed easing support EM assets and EM FX for now, while the prospect of less favourable yield differentials as cuts end is seen as a key risk that could reduce EM FX attractiveness and temper further appreciation [p.24–25].
JPAM Outlook	n.a.
JPM Outlook	U.S. rate and inflation dynamics are mentioned mainly as risks—slower‑than‑expected Fed easing or upside surprises to growth and yields (10‑year in a 4.00%–4.50% range) could widen rate differentials and temporarily support the dollar, challenging the baseline weaker‑USD path. [p.4–5]
KKR 2026 Outlook	U.S.–rest‑of‑world short‑rate differentials are expected to narrow slightly through 2027 as the Fed cuts while the ECB and BoJ modestly tighten, a shift that should weigh on the dollar but is partially offset because the dollar is currently somewhat undervalued versus rate differentials, so convergence gives a modest near‑term boost [p.71, p.73]. The relationship between DXY and U.S.–RoW swap differentials has largely renormalized after the post‑“Liberation Day” divergence, and surprise deviations from the expected rate paths (e.g., higher‑for‑longer U.S. rates or a recessionary cutting cycle) are flagged as key upside/downside risks for the dollar [p.61–63, p.71, p.73].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	Lower front‑end US rates and narrower rate differentials are identified as key drivers of USD weakness, reducing demand for USD‑denominated assets and allowing DXY to potentially fall to 90 or below in the bull case [p.22]. Baseline expectations of easier Fed policy, an early end to QT, and a generally more accommodative stance into 2026 support a softer‑USD bias, while a bear‑case inflation shock that forces renewed rate hikes would be USD‑supportive relative to the base/bull scenarios [p.5–6, p.11, p.19–20, p.23].
Stifel Outlook	n.a.
TRowe Outlook	The dollar’s expected decline into 2026 is explicitly tied to the Fed cutting short‑term rates while many other central banks are already further along in their easing cycles, narrowing or reversing prior USD yield advantages and reducing support from rate differentials [p.5][p.15]. Sticky U.S. inflation and uncertainty around the Fed’s ability to return inflation to 2% increase the risk of real‑rate erosion, reinforcing a weaker USD baseline, though a more hawkish‑than‑priced Fed is flagged as a risk that could re‑strengthen the currency [p.3][p.14][p.15].
RIC 2026 BAML	Fed expectations of a lower terminal rate (3.00–3.25%) via additional cuts under Powell and a more dovish successor are linked to lower real rates and a skew toward downside risks for the USD, with December FOMC and Fed Chair decisions described as offering “limited upside” but “greater downside outcomes” for the dollar [p.17]. Short‑term FX stance remains Neutral due to mixed macro signals, but the rate path is an important channel through which policy shifts could unlock the medium‑term bearish dollar view [p.17].
UBS Year Ahead	US dollar weakness is linked to Fed funds cuts toward roughly 3–3.33% by end‑2026, while key peers like the ECB (2.00%) and SNB (0.00%) are broadly on hold, compressing US‑foreign rate differentials and reducing USD support [p.42, p.60]. Narrowing US‑Japan yield spreads, as the BoJ hikes to about 1.00% while the Fed eases, underpin expectations of gradual JPY appreciation versus USD (USDJPY 155→146) [p.43, p.60]. FX scenario and forecast tables embed this rates path, with weaker USD outcomes across scenarios as differentials move against the dollar [p.48, p.60].

US fiscal and policy uncertainty as FX factor — deficits, politics, and their dollar implications

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	High U.S. public debt and rising term premia are highlighted as sources of policy tension between inflation control and debt-servicing costs that could influence U.S. rates and, indirectly, the dollar [p.7]. Geopolitical and policy shocks are framed as potential triggers for risk-off moves that could boost demand for USD assets [p.7, p.10].
Goldman Outlook - Summary	2025’s “significant depreciation of the US dollar” is directly attributed to “US policy uncertainty and an increasing budget deficit,” linking fiscal slippage and political uncertainty to dollar weakness [p.5]. Rising uncertainty over US fiscal health in 2026 is highlighted as a broader macro issue, with an implied risk that shifts in fiscal perceptions (e.g., credible consolidation) could alter the current soft-USD narrative [p.11].
Goldman Outlook	An unusually large fiscal deficit, rising debt‑to‑GDP, and higher real rates are cited as sources of “fiscal anxieties,” with recent significant USD depreciation attributed in part to US policy uncertainty and an increasing budget deficit [p.6, p.13, p.19]. Ongoing White House pressure on the Fed to cut rates is seen as a factor that could unsettle markets, lift inflation expectations, steepen the curve, and weigh on the dollar, while mid‑2026 political events (midterms, Fed leadership changes) are flagged as potential USD‑relevant shocks [p.7].
Barclays Outlook	n.a.
HSBC Outlook	Large US fiscal deficits, the upcoming 2026 Fed chair renewal, and the Supreme Court tariff case are important sources of institutional and policy uncertainty that add to USD risk premia but are not yet decisive enough to drive a strong directional move, reinforcing the neutral stance [p.22, p.24–25]. A prolonged government shutdown that obscures key economic data further complicates assessment of tariff and tight‑financial‑conditions impacts on growth and thus clouds the USD outlook [p.21, p.24].
JPAM Outlook	n.a.
JPM Outlook	Rising U.S. debt levels and ongoing inflation uncertainty underpin a recommendation to diversify fixed‑income exposure globally, implicitly reducing reliance on USD assets, while additional fiscal or tariff‑related stimulus ahead of elections is cited as a risk that could lift U.S. growth and thereby limit or reverse dollar weakness. Broader political and policy shocks (tariffs, trade conflict, liquidity shocks) are flagged as potential catalysts for safe‑haven USD strength against the valuation‑driven weakening trend. [p.3–5]
KKR 2026 Outlook	Fiscal credibility and trade policy are identified as potential swing factors, where a sharp deterioration in U.S. fiscal standing or more aggressive tariff and geopolitical shocks could reverse large portfolio and FDI inflows, undermining key support pillars for the dollar [p.27, p.32–33, p.71–72]. Tariff shocks could also trigger risk‑off phases that initially strengthen the dollar as a safe haven, or alternatively erode confidence in U.S. policy stability and weigh on the currency, underscoring path uncertainty [p.27, p.32–33, p.71–72].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	Very high debt and persistent fiscal deficits, alongside a strategy of “running it hot” with financial repression and de facto debt monetization, create a structurally challenging backdrop for the USD, as currency depreciation is used to keep inflation going while holding down real funding costs [p.11–12]. Growing current account deficits (‑4.4% of GDP and widening) and trade policy choices, including tariffs and tolerance for a weaker currency, reinforce a medium‑term bias against a strong USD [p.9, p.11–12].
Stifel Outlook	High U.S. deficits and money growth are highlighted as structural features of the macro environment and potential sources of long‑run pressure on the dollar [p.40]. Fiscal dynamics are treated as part of a broad regime supporting commodities, Value, and non‑U.S. assets rather than as a stand‑alone FX factor.
TRowe Outlook	Elevated U.S. government debt above 120% of GDP, expansionary fiscal policy, and inflationary measures such as tariffs and immigration restrictions complicate disinflation, keeping inflation nearer or above 3% in 2026 and eroding real returns on USD assets, which indirectly supports a weaker‑dollar view over the tactical horizon [p.3][p.14][p.15]. Tariff‑driven fiscal challenges are also highlighted as a source of longer‑term uncertainty for EM sovereigns and FX, potentially altering the distribution of outcomes for dollar‑EM currency pairs [p.4][p.18].
RIC 2026 BAML	Large US external imbalances (world owns ~$26tn more US assets than vice versa) and concerns about fiscal deficits and “heterodox economic policy” are tied to de‑dollarization pressures and stronger demand for gold as an alternative reserve asset, indirectly signaling structural downside risks to the dollar over the H2‑2020s [p.3, p.10, p.18]. Policy uncertainty around Fed independence and leadership transition is also cited as a factor that could compress real yields and weigh on the USD [p.17].
UBS Year Ahead	Persistent US fiscal and current account “twin deficits” are structural headwinds that reduce the likelihood of a strong USD recovery and weigh on the currency beyond the near‑term rates cycle [p.42]. Rising debt burdens and prospective financial repression are expected to push more of the macro adjustment into FX rather than yields, increasing dollar volatility and reinforcing incentives to diversify away from USD assets [p.36–38, p.42]. Political shocks (including US political developments) are potential sources of short‑lived financial and FX volatility that could intermittently affect USD dynamics [p.46–47].

USD vs EUR and non‑USD investor effects — bilateral views and FX translation impacts

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	n.a.
Goldman Outlook - Summary	USD depreciation created FX risks and a performance divergence for non-USD investors, with US assets showing strong local returns but a large gap in Euro terms “not seen in over two decades” [p.5]. This underscores significant USD/EUR translation effects on returns.
Goldman Outlook	A notable USD depreciation in 2025 created a sharp divergence between US and European equity performance when measured in euro terms, with FX translation driving a return gap “not seen in over two decades” for euro‑based investors [p.19]. Strategic FX hedging is highlighted as increasingly important for multi‑asset and non‑USD investors given shifting correlations and dollar dynamics [p.10, p.19].
Barclays Outlook	A stronger euro is cited as one of the factors likely to drag on eurozone growth in 2026, alongside US tariffs, implicitly reflecting a softer USD versus EUR backdrop [p.9].
HSBC Outlook	Relative to USD, EUR and AUD are preferred in G10 given a more favourable cyclical and fiscal backdrop in Europe and a relatively hawkish RBA, with additional upside expected in SGD, KRW and ZAR versus USD and downside in CAD and TRY [p.24–25]. This underpins an explicit recommendation for investors—especially those with USD‑centric portfolios—to diversify FX exposure away from over‑reliance on USD, improving translation and return potential through a basket of non‑USD currencies aligned with these bilateral views [p.24].
JPAM Outlook	n.a.
JPM Outlook	A weaker USD is credited with contributing about 7 percentage points to international equity returns in 2025, underscoring how FX translation has enhanced non‑USD investors’ performance in foreign markets. The report also cites a positive correlation between the dollar and U.S. equities in 2025 that is leading foreign investors to hedge more USD exposure. [p.8]
KKR 2026 Outlook	EUR is judged to be about 20% undervalued on PPP versus USD, with room for continued appreciation as Eurozone inflation is controlled, and JPY is projected to strengthen into a 137–147 USD/JPY range over 2026–27 as BoJ normalization narrows yield spreads [p.44, p.66–67, p.74]. A gradually weaker dollar and appreciation of major non‑USD currencies are incorporated as positive FX contributions to international equity return forecasts, providing translation tailwinds for USD‑based investors in Europe and Japan [p.60, p.71–73, p.78].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	n.a.
Stifel Outlook	n.a.
TRowe Outlook	EUR strength is expected to play a meaningful role, with a “stronger euro” contributing to lower eurozone inflation and a specific warning that EUR/USD appreciation beyond 1.20 could trigger “currency‑driven cuts,” implying room for euro gains from the current 1.16 spot but also a potential policy cap to excessive EUR strength [p.4][p.5][p.10]. For non‑USD investors, a weaker dollar is cited as a tailwind for non‑U.S. equities and small caps, particularly in Europe, and underpins a preference for unhedged local‑currency exposures that benefit from FX translation as USD declines [p.15][p.17].
RIC 2026 BAML	Forecasts show EUR/USD at 1.22 by end‑2026, alongside a weaker DXY, implying a softer USD and stronger EUR and other non‑US currencies like CNY, MXN, and BRL, which supports international and European equities versus US assets through FX translation and relative performance [p.2–3, p.19]. As correlations between US and non‑US equities decline and capital rotates away from crowded “US tech & Treasuries,” a softer dollar amplifies returns for non‑USD investors in international and EM markets [p.3].
UBS Year Ahead	EUR is expected to regain ground against USD as French political risk fades and German fiscal stimulus and private‑sector re‑leveraging take hold, with EURUSD targeted at 1.20 by Dec‑2026 and stronger in all macro scenarios (1.14–1.26) [p.42, p.48, p.60]. GBP is seen delivering positive returns versus USD while remaining broadly steady against EUR, and CHF is expected to underperform EUR and higher‑yielders on total return even as USDCHF edges slightly lower [p.42, p.60]. For globally oriented, non‑USD investors, portfolio guidance stresses diversifying currency exposure (rather than anchoring solely to USD) across major currencies with strong fundamentals, using metrics like current account balances, safe‑haven status, trade share, and reserve role, to manage translation and risk [p.43].

Structural dollar demand and usage channels — stablecoins, global role, and long‑term support

Source	Content
Brookfield Outlook	n.a.
Blackrock Outlook	USD-linked stablecoins (e.g., USDT, USDC) with a combined market cap over $250 billion as of Nov. 27 are described as expanding channels for dollar liquidity and payments, including cross-border flows [p.11]. In EMs, stablecoins can act as an alternative to local currencies, broadening dollar access but challenging domestic monetary control, effectively reinforcing structural demand for the dollar even without an explicit long-term FX level forecast [p.11].
Goldman Outlook - Summary	n.a.
Goldman Outlook	n.a.
Barclays Outlook	n.a.
HSBC Outlook	The USD share of global reserves is steadily declining while the gold share has risen substantially since 2022, supporting an overweight stance in gold as a diversifier against a weaker‑USD scenario and indicating gradual, though not abrupt, diversification away from USD in official reserves [p.24–25].
JPAM Outlook	n.a.
JPM Outlook	n.a.
KKR 2026 Outlook	Persistent structural demand for dollars is highlighted by robust foreign portfolio inflows (~US$880bn YTD) and FDI potentially reaching ~US$400bn TTM, alongside stable central bank USD reserves of about US$6.8tn, leading to the conclusion that de‑dollarization fears are overblown and the dollar’s global role remains intact [p.71–72]. Growing use of CNY in intra‑Asia trade is acknowledged as a regional trend, but it is framed as reducing USD dominance at the margin in trade finance rather than materially threatening the dollar’s long‑term reserve‑currency status [p.20, p.72].
MS - 2026 US Equities Outlook - The Rolling Recovery Is Here	n.a.
Stifel Outlook	n.a.
TRowe Outlook	n.a.
RIC 2026 BAML	Structural themes focus on de‑dollarization as a key H2‑2020s dynamic, with the dollar’s historically rich level and massive US external liabilities seen as unsustainable without gradual FX adjustment [p.3, p.17]. Central bank gold buying and diversification away from USD reserves are mentioned as part of this structural shift, reinforcing long‑term headwinds to dollar demand but without quantifying the pace of global usage changes [p.10, p.18].
UBS Year Ahead	Structural demand for USD is eroding at the margin, with the dollar’s share of global FX reserves having fallen from about 65% in the early 2000s to the low‑40s/upper‑30s, and ongoing efforts by global institutions and private investors to diversify away from the dollar cited as a headwind to any strong USD recovery [p.42]. Rising global debt and more pervasive financial repression are expected to raise FX volatility and make currency diversification more important [p.36–38, p.42]. Overall, the long‑term global role of the dollar is treated as persistent but gradually less dominant rather than abruptly displaced [p.42–43].

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