The US dollar is expected to weaken further in 2026, albeit at a slower pace than this year, according to analysts at Deutsche Bank.
Over the past year, the dollar index, which measures the greenback against a basket of currency pairs, has fallen by more than 6%.
A series of political moves under US President Donald Trump have affected the dollar during 2025, including broad White House tariffs, fears about the sustainability of high US government debt levels, and concerns about the independence of the Federal Reserve.
In a note, Deutsche Bank analysts, including George Saravelos and Tim Baker, said that the impact on the greenback from President Donald Trump’s return in early 2025 ‘is already over.’
‘But valuations, balance of payments dynamics and relative monetary policy cycles support a gradual weakening of the dollar,’ they wrote, predicting that the trade-weighted dollar would be 10% weaker by the end of next year.
‘If these forecasts materialise, they will confirm that this decade’s unusually long bullish cycle for the dollar has come to an end,’ they said.
Analysts added that the rise of artificial intelligence stands out as a variable driving ‘two-way risks’ for the US currency.
Persistent progress and a transformation of capital deepening into a sustained revival of American productivity could support the dollar through higher growth rates and capital inflows, they argued.
However, the benefits of AI may extend beyond the US, where much of the heavy spending on this nascent technology has originated, analysts said, noting that this could help boost global productivity as a result.
‘The most negative scenario for the dollar would involve a disorderly unwinding of the current investment boom due to investments proving uneconomical and/or a more disorderly initial impact on the labour market,’ the analysts said.
The US dollar strengthened slightly on Thursday in a relatively quiet market due to the Thanksgiving holiday, although the currency remained on track to post its biggest weekly decline in four months.
At 10:49 (Spanish time), the US dollar index, which tracks the greenback against a basket of rival currencies, had risen 0.1% to 99.69.
Analysts have pointed to reports suggesting that White House economic adviser Kevin Hassett is the favourite to become the next Federal Reserve chair, saying that Hassett’s tendency towards aggressive interest rate cuts could weigh on the dollar.
Source: Investing.com
