Bank of America
FX Outlook 2026: Structural Dollar Headwinds
Performance Snapshot
DXY
100.2
Target: 93.5
EUR/USD
1.15
Target: 1.22
USD/JPY
157
Target: 147
USD Bias
BEARISH
DXY Forecast Path
USD Sensitivity Analysis
Top Currency Pairs
| Pair | Direction | Status | Spot | Live | Trend | Dec 26 | vs Spot | vs Live |
|---|---|---|---|---|---|---|---|---|
| TRY | Sell TRY | -- | 42.45 | -- | 51 | -16.8% | -- | |
| HUF | Buy HUF | -- | 332 | -- | 292 | +13.7% | -- | |
| PLN | Buy PLN | -- | 3.67 | -- | 3.28 | +11.9% | -- | |
| SEK | Buy SEK | -- | 9.54 | -- | 8.65 | +10.3% | -- | |
| NOK | Buy NOK | -- | 10.25 | -- | 9.35 | +9.6% | -- | |
| ZAR | Buy ZAR | -- | 17.31 | -- | 15.8 | +9.6% | -- | |
| AUD | Buy AUD | -- | 0.64 | -- | 0.7 | +9.4% | -- | |
| KRW | Buy KRW | -- | 1477 | -- | 1370 | +7.8% | -- |
Explore Report Sections
Macro Trade Themes
Structural Dollar Headwinds
Twin deficits weigh on USD
The US twin deficit -- fiscal and current account -- continues to widen, creating structural headwinds for the dollar. Capital inflows that previously supported the USD are rotating toward Europe and Asia as relative growth differentials narrow and the Fed easing cycle progresses.
European Renaissance
EUR/NOK/SEK on fiscal stimulus
Europe's fiscal pivot, led by Germany's historic infrastructure program, is transforming the growth outlook for EUR-linked currencies. Scandinavian FX benefits from high beta to European growth, with NOK and SEK poised for significant appreciation as fiscal multipliers kick in through 2026.
EM High Beta
Long ZAR, BRL carry
High-yielding EM currencies with improving fundamentals offer attractive carry and capital appreciation potential. ZAR benefits from commodity terms of trade and fiscal improvement, while BRL carry remains compelling despite election-year volatility.
Asia Rebalancing
Long KRW, INR on trade flows
Asian currencies are undervalued relative to their trade surpluses and improving capital flows. KRW benefits from WGBI inclusion flows and tech cycle recovery, while INR is supported by RBI reserve accumulation slowing and portfolio inflows improving.
Yen Tactical Recovery
JPY from carry unwind
The yen is the most undervalued G10 currency on PPP and REER metrics. As the BoJ normalizes policy and global carry trades face headwinds from lower rate differentials, JPY is positioned for a tactical recovery. The carry unwind risk is asymmetric and could trigger sharp moves.