DBS Group Research’s Philip Wee has cut US Dollar forecasts against most major and Asian currencies. He points to uncertainty over Federal Reserve leadership and independence, ongoing de-dollarisation, and rising US political risk ahead of the November midterm elections.
He says the Dollar no longer benefits as much from interest rate gaps or the idea of US economic exceptionalism. Instead, he believes institutional credibility and politics are now driving currency moves.
Shifting Drivers Of Dollar Performance
DBS expects two Federal Reserve rate cuts in 2H26. The note also says de-dollarisation will continue.
The article says it was produced with help from an AI tool and reviewed by an editor. It also notes that the FXStreet Insights Team selects market views from outside experts and from internal and external analysts.
We are cutting our US Dollar forecasts because the greenback is no longer supported by rate differentials or by narratives of US economic exceptionalism. Instead, institutional credibility and political risks are becoming the main drivers. We now expect two Federal Reserve rate cuts in the second half of 2026.
This change follows data showing the growth gap between the US and other major economies is narrowing. For example, US GDP growth in Q4 2025 was 1.9%, while the Eurozone recovery came in at a stronger-than-expected 1.6%. That smaller gap reduces a key advantage that previously supported the dollar. It suggests the dollar’s strength from better economic performance is fading.
What Traders May Watch Next
We expect the Fed to start cutting rates later this year, but other central banks may not follow. The European Central Bank, for example, kept rates unchanged at its January 2026 meeting, citing persistent underlying inflation. This reduces the dollar’s yield advantage. As policy paths diverge, one of the dollar’s main supports weakens.
The slow move away from the dollar also remains a steady headwind. IMF data on central bank reserves released in late 2025 showed the dollar’s share of allocated reserves fell to a new low of 57.9%. This points to a long-term structural shift that is gradually weighing on the currency.
For traders, this outlook may favor strategies that benefit from a weaker dollar, especially heading into the uncertain November midterm elections. Examples include buying puts on dollar-tracking ETFs like UUP or using futures to take short positions against currencies supported by more hawkish central banks. Given the higher volatility seen during the 2022 midterm cycle, preparing for wider price swings may also make sense.
With these forces in play, implied volatility in dollar pairs may rise in the months ahead. Traders may want to watch options pricing for chances to hedge, or to position for, choppier markets. In this environment, political and policy uncertainty may matter more than simple measures of economic strength.
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