Bank of America
FX Outlook 2026: Structural Dollar Headwinds
LIVE5 December 2025USD bearish
FX Macro Quant
Bank of America quantitative strategy signals and factor analysis
Key Insights for 2026
1Twin deficit dynamics are the dominant driver of USD weakness in 2026, a structural force that persists across growth scenarios.
2European fiscal stimulus creates a positive growth shock that benefits EUR-linked carry and momentum strategies.
3EM carry-to-vol ratios remain elevated, especially in EMEA, supporting carry-funded strategies.
4Scandi FX (NOK, SEK) offer the best risk-adjusted returns as high-beta expressions of European recovery.
5JPY's extreme undervaluation on REER creates asymmetric mean-reversion risk that option markets underestimate.
6G10 fiscal RV remains a strong theme but narrower than 2025 as twin deficit becomes consensus.
Strategy Returns: Strong vs Weak Equity
Avg quarterly returns by equity quartile regime
Strategy Regime Sensitivity
Weak equity return vs strong equity return per strategy
Strategy Returns Heatmap
Color intensity represents return magnitude
| Strategy | Weak Q1 | Q2 | Q3 | Strong Q4 |
|---|---|---|---|---|
| G10 Carry: adjusted by volatility | +2.8% | -0.5% | +2.5% | +3.0% |
| Global Carry: adjusted by volatility | -3.2% | +0.1% | +1.0% | +2.5% |
| EM Carry: adjusted by volatility | +0.2% | +0.0% | -0.5% | +2.0% |
| Global Real Carry (core) | -2.8% | +1.0% | +1.5% | +1.8% |
| G10 Commodity ToT | -2.5% | +1.5% | +2.5% | +1.3% |
| G10 Equity momentum | -4.0% | -0.3% | +0.6% | +1.1% |
| Twin deficit momentum | +4.2% | +1.2% | +1.5% | +0.8% |
| Global carry + growth + value | +3.0% | +1.2% | +1.5% | +0.7% |
| Fiscal RV composite | +3.8% | +0.5% | +1.0% | +0.5% |
| Global Commodity ToT | +1.5% | +1.8% | +0.9% | +0.4% |
| G10 Rates momentum | +2.0% | +1.3% | -0.4% | +0.1% |
| G10 Value REER PPI | -0.5% | +0.3% | -0.2% | -0.1% |
| Global Value REER PPI | +3.2% | +0.6% | +0.3% | -1.0% |
| G10 Growth (RV FRIs) | +4.0% | +0.4% | +0.7% | -1.1% |
| G10 Composite Growth (EAS+FRI RV) | +4.8% | +0.4% | +0.2% | -1.8% |
Strategy Profile
Absolute return magnitude
Live Market Context
EUR/USD
--
GBP/USD
--
USD/JPY
--
USD/CHF
--
AUD/USD
--
USD/CAD
--