The greenback has had a tough two weeks as Trump is back with a bang to start the new year with all his shenanigans. Erratic geopolitical risk management and attack on the Fed independence are two main issues that have hurt the dollar in the past week especially. And HSBC notes that this could just be the start of things come. The firm lays out the backdrop as such:
"The race has started and there will be many more twists and turns ahead in 2026. A face for US policy uncertainty, namely geopolitics, is a stark reminder of what can suddenly materialise to impact exchange rates. Plus, there remains a lot to digest in terms of other forms of policy unknowns, namely who will be the Fed Chair and how can this impact the shape of the FOMC’s monetary policy to come."
The firm expects growth currencies in the G10 to set the pace in terms of leading the pack, that despite some retracement in rate hike expectations for this year. Of note, they highlight the antipodean currencies i.e. AUD and NZD, as well as the SEK to be their most preferred picks among major currencies for the year.
Besides that, HSBC also says that "high-quality EM FX" will also outperform. That very much continues the theme from 2025 with Asian currencies especially being among the top gainers.
Circling back to the dollar, the firm notes that there are potential scenarios for the greenback to bounce back. However, that is not within their outlook for the time being at least.
"What could make us think differently about the broad USD? A receding of this uncertainty alongside structural and cyclical drivers turning increasingly positive for the USD. Continued foreign buying of US assets combined with US equity outperformance and upside surprises on the activity front could see it move up the leader board. But for now, we think the USD should stay towards the back of the pack"
