Dollar expected to lag behind peers - HSBC

Recent Challenges for the US Dollar

Over the past two weeks, the US dollar has faced significant headwinds, largely due to the renewed prominence of Trump and his unpredictable actions as the year begins. Unstable geopolitical strategies and direct challenges to the Federal Reserve’s autonomy have been the primary factors weighing on the greenback, particularly in the last week. According to HSBC, these developments may only be the beginning of further volatility.

The race is underway, and we can expect many unexpected developments as 2026 approaches. Uncertainty surrounding US policies—especially in the realm of geopolitics—serves as a clear warning of how quickly events can influence currency markets. Additionally, there are still many unknowns, such as the identity of the next Fed Chair and the potential impact on the Federal Open Market Committee’s future monetary policy decisions.

HSBC’s Currency Outlook

HSBC anticipates that G10 growth-oriented currencies will take the lead, even though expectations for interest rate hikes this year have moderated. The bank particularly favors the Australian dollar (AUD), New Zealand dollar (NZD), and Swedish krona (SEK) as their top choices among major currencies for the coming year.

Furthermore, HSBC projects that “high-quality emerging market currencies” will also deliver strong performance. This trend, which began in 2025, is expected to continue, with Asian currencies likely to be among the best performers.

Potential for a Dollar Rebound

While HSBC acknowledges that there are scenarios in which the US dollar could regain strength, such a turnaround is not part of their current forecast.

What might change our perspective on the US dollar? A reduction in uncertainty, along with more favorable structural and cyclical factors, could boost the greenback. Increased foreign investment in US assets, strong performance in US equities, and positive surprises in economic activity could help the dollar climb the ranks. For now, however, we expect the dollar to remain among the weaker performers.