Nordea’s Macro & Markets report discusses the ongoing weakness of the US Dollar due to geopolitical issues and historical trends. The report suggests we might see a long-lasting decline in the dollar, potentially lasting several years. History shows that after strong dollar periods in the mid-1980s and early 2000s, it took over five years for the market to reach its lowest point. We might now be entering a similar phase of dollar weakness.

Foreign Entity Behavior

We’re noticing changes in how foreign investors view the US Dollar. As geopolitical risks rise, many are reassessing their investments, which could affect the dollar’s value. The report predicts the EUR/USD exchange rate could reach 1.26 by the end of 2027. This points to possible shifts in foreign investments and highlights how US monetary policy may influence the dollar. This summary was made with help from an AI tool and checked by an editor. It includes insights from market experts and analysts. Signs indicate that the US dollar may be entering a lengthy decline, a view backed by the Federal Reserve’s softening stance in their January meeting. This suggests that traders should consider strategies that expect the dollar to weaken, especially using derivatives. It’s wise to avoid holding long dollar positions without a protective hedge.

Analyzing Currency Cycles

We’ve seen similar currency cycles in the past, where a strong dollar peak leads to several years of decline. Looking back to 2025, the dollar’s strength mirrors the highs of the mid-1980s and early 2000s. Derivative traders might explore longer-term options, such as those expiring in late 2026, to take advantage of this potential trend. We’re also seeing a notable shift in foreign investment trends. Data from the fourth quarter of 2025 shows a significant drop in foreign investments in US stocks and bonds, a trend we expect to continue. This growing hesitance about US assets may make buying puts on the USD Index (DXY) an appealing strategy for the coming weeks. With the EUR/USD pair currently at around 1.15, a long-term rise to 1.26 is likely. In the next few weeks, traders might consider buying call options on the EUR/USD with strike prices around 1.18 or 1.20. This way, they can benefit from expected gains while minimizing potential losses. Additionally, the interest rate gap between the US and other major economies is narrowing, particularly with the Eurozone, where the difference has shrunk by 25 basis points since November 2025. This makes holding dollars less attractive and supports the idea of a weaker dollar. This situation could make shorting USD futures against currencies with a more aggressive central bank outlook a smart move. Create your live VT Markets account and start trading now.

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