DBS Group Research says its FX risk score fell in early 2026 to its lowest level since late 2021. The main reason is a weaker US dollar at the start of the year.
The US dollar already fell 9.4% in 2025. DBS links the continued pressure to worries about Federal Reserve independence, fading US exceptionalism, long-term fiscal health, and policy uncertainty.
Dollar Weakness Drives Lower FX Risk
DBS notes the appointment of Kevin Warsh as the new Fed Chair. It also says funding conditions remain comfortable in euro and Japanese markets, although there is a slight bias toward tightening.
DBS says this FX reading comes from its Asset Risks Dashboard, which tracks four asset classes: equities, interest rates, credit, and FX. This update focuses on FX.
The current weakness in the US dollar may create a clear opportunity for traders in the coming weeks. After the 9.4% drop in the dollar index in 2025, the downtrend is still in place in early 2026. This suggests it may make sense to position for more dollar weakness.
Fiscal concerns are a key driver, so they are worth watching closely. US debt-to-GDP is now above 125%, a level not seen since after World War II. This is raising doubts about long-term sustainability and weighing on the dollar. In this setting, it is harder for the greenback to find firm support.
Potential Trades In A Softer Dollar Regime
For currency traders, this can support long positions in major pairs against the dollar, such as EUR/USD. One approach is to buy euro call options, such as an April expiry with a 1.12 strike, to benefit if the dollar falls further. Futures markets also reflect this shift. They now price only a 15% chance of a Fed rate hike by June, down from more than 50% a few months ago.
A weaker dollar can also support commodities, especially gold. Historically, the dollar and gold often move in opposite directions. That pattern also appeared during the dollar’s decline in 2020. Open interest in gold futures is rising, and many positions appear to target a move toward $2,500 per ounce over the next quarter.
This environment can also help some emerging-market currencies that benefit from a softer greenback. When the dollar falls, it becomes easier for these countries to service USD-denominated debt, which can lift investor confidence. Foreign inflows into emerging-market bonds hit a two-year high last month, showing growing interest.
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