Name: U.S. dollar to weaken but at slower pace than 2025, Saravelos says
Uploaded: 2026-01-07T16:59:56.757Z
Duration: 2 min 59 s
Description: George Saravelos, global head of FX research at Deutsche Bank offers his outlook for the U.S. dollar after the currency posted its worst performance since 2017 last year.

George Saravelos, global head of FX research at Deutsche Bank offers his outlook for the U.S. dollar after the currency posted its worst performance since 2017 last year.

George Saravelos, head of FX research at Deutsche Bank, projects that the U.S. dollar will continue to weaken in 2026, though at a slower rate compared to the sharp decline recorded in 2025. He notes that the dollar's broad trade-weighted value fell significantly last year, marking the second largest annual drop since the introduction of free-floating exchange rates.

Saravelos attributes the anticipated continued weakness to cyclical factors, such as the U.S. dollar losing its status as the highest-yielding developed market currency and the broadening of global economic growth beyond the U.S. He also highlights the impact of fiscal stimulus in Europe and a large U.S. external deficit, but emphasizes that the pace of dollar depreciation is likely to moderate compared to the previous year.

U.S. dollar to weaken but at slower pace than 2025, Saravelos says

George Saravellas of Deutsche Bank writing, we project further dollar weakness, but at a slower pace than 25. George joins us now for more. George, welcome to the programme and Happy New Year to you, sir. Let's start with the chart. The chart of DXY, the dollar index, sold aggressively as we started 2025 and flatlined since May, June of last year. It's basically done nothing. So, can we deal with that first? What's behind the nothing over the last six months? Happy New Year to you as well, John. So, we definitely saw the DXY, as you say, stabilise around the summer, but effectively, the dollar weakness rotated from some of the developed currencies to emerging markets. So, we have to remember dollar China started moving sharply lower from the summer onwards, a lot of emerging market currencies. So, actually, if you look at the trade-weighted dollar, the broad trade-weighted dollar, it was moving down pretty much throughout the year. And in fact, in December, I just updated some of my own charts. The full-year drop in the dollar in 2025 was the second biggest drop on record since free-floating exchange rates started after Bretton Woods. So, it was a very big year for FX. I would argue it's going to be very difficult to repeat that type of move in 2026, though there's certainly a lot of interesting stories going on, of course, in the background. Well, let's explore some of that a little bit further, George. So, if you are anticipating further dollar weakness, give us the why, and then two, just to build on what you said, how to play it and what against? So, the why is mostly on the back of cyclical reasons, because there is an underlying story around dollar dominance. But if you go back, you see those properties of the dollar that make it dominant in payments, in reserves, these take decades to change. So, the view is more about the cyclical dynamics and there's a couple of things that have happened over the last 12 months. The first thing is the dollar is no longer the world's highest yielding currency in developed markets, at least because the Fed's been cutting rates as everyone else has stopped doing the same. And empirically, the dollar being a high yielder is a big deal. And when it no longer is a high yielder, and you've got other currencies now, for example, in Australia or in Norway, on that property, that removes a big tailwind for the dollar. So, that's number one. Number two is if you look at the global composition of growth, over the last few years, the U.S. was leading the pack. And what you've seen over the last 12 months is global growth broadened out to other economies as well. Europe is, of course, doing fiscal stimulus. Japan is potentially joining. So, overall, a solid global growth outlook, but with growth convergence, and the dollar being less of a high yielder, plus a very large external deficit that's very reliant on AI inflows, that's pretty much the mix that I think should allow the dollar to continue to weaken, but at a much slower pace than we saw last year.

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