USD: Potential for prolonged weakness – Nordea

Nordea's Macro & Markets report by Sara Midtgaard discusses the ongoing weakness of the US Dollar, driven by geopolitical factors and historical patterns. The report suggests that the current downturn could be long-lasting, with potential for a multi-year period of dollar weakness. It also highlights the changing behavior of foreign investors and the implications of US monetary policy on the Dollar's strength.

Analysis of US Dollar trends

"The current dollar downturn could potentially be long-lasting, albeit with periodic setbacks along the way. In previous episodes when the dollar reached historically strong levels – such as in the mid-1980s and the early 2000s – it took more than five years before the cycle bottom was reached."

"We therefore cannot rule out that the current environment marks the beginning of a multi-year period of dollar weakness before a cyclical bottom is eventually reached. Our forecast implies that EURUSD will reach 1.26 by the end of 2027."

"This dynamic now appears to be shifting. Foreign investors have become more alert to geopolitical risks associated with the US. As a result, some are reassessing their exposure."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)