A report from Nordea highlights the recent rise of the USD against the EUR and JPY, even though it has a long-term bearish forecast. It suggests that the USD’s strength is currently safe, but there are signs of a possible weakening trend as investors explore alternatives.
The report predicts that the Fed and ECB will not change interest rates this year, while expecting a gradual rise in long-term rates. It highlights the importance of conducting independent research on market investments, as FXStreet warns about potential risks and inaccuracies.
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The recent strengthening of the dollar indicates that it is not weakening significantly, offering some short-term stability. The latest jobs report for January 2026, showing an addition of 210,000 jobs, supports this short-term strength. This suggests that aggressively betting against the dollar may be premature in the next few weeks.
However, we believe the broader trend is a gradual decline of the dollar as investors seek alternatives. In 2025, we noticed central banks diversifying their reserves away from the dollar—a slow but steady trend likely to continue. Thus, short-term rallies like the current one may be better viewed as chances to position for a longer-term decline, using longer-dated put options on the dollar index.
With both the Federal Reserve and the European Central Bank expected to hold interest rates steady for the remainder of the year, a significant source of volatility is removed. Recent inflation data shows the Consumer Price Index at 2.8%, which explains why policymakers are reluctant to take action. This environment could favor strategies that benefit from lower currency volatility, such as selling short-dated straddles on currency pairs like EUR/USD.
Interest Rates And Currency Strategies
We also anticipate that long-term interest rates will continue to rise slowly. This trend, which began in the latter half of 2025, may support the dollar against currencies with lower yields, such as the yen. This creates a complex dynamic where short-term carry trades could be successful, despite the negative long-term outlook for the dollar.
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