US Dollar
The current macro environment is a toxic brew of many of the same vulnerabilities that haunted the global economy in the lead-up to past recessions: Rising oil prices, an unsustainable tech capex boom, elevated equity valuations, excessively high homes prices, and brewing stresses in private credit and other parts of the financial system. While global equities look increasingly oversold in the very near term, they will still finish the year below current levels.
Investors are too complacent on the closure of the Strait of Hormuz. Upgrade cash and downgrade equities, both to neutral.
The Iran war remains a terms-of-trade shock rather than a classic flight to safety – for now. As oil risks skew higher, policy repricing and growth differentials should continue to favor a tactical rebound in the USD.
Policy risks are set to fade just as markets underestimate hawkish Fed repricing and crowd into short-USD positions, setting the stage for a tactical dollar rebound into the election cycle. Go long USD/CHF to capture the rate differential and receding policy uncertainty.
FX markets have dominated headlines over the past week, with a meltdown in the dollar and a surge in the yen. This week’s note unpacks the forces behind these moves and assesses whether recent price action marks a temporary dislocation or the start of a more durable FX shift.
The dollar’s grip on global finance remains formidable, but the foundations are slowly shifting. Our new Dollar Dominance Indicator cuts through the noise, showing why USD usage stays sticky even as reserve demand erodes, and what this long transition means for FX and alternative reserve assets.
MacroQuant has downgraded equities to underweight, favors a below-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, and is still bullish on gold.
The dollar enters 2026 on the edge of a structural decline. Our FX Key Views report maps the valuation, flow, and policy pressures that could finally trigger a sustained downtrend – and where the trade opportunities lie.
This year, we once again present our 2026 outlook as a retrospective from the future – a future in which the AI boom turned to bust.
Next week, please join me for a Webcast on Wednesday, December 17 at 10:30 AM EST (3:30 PM GMT, 4:30 PM CET) to discuss the economy and financial markets. We will also host a Webcast for APAC on Tuesday, December 16 at 8:00 PM EST (9:00 AM HKT+1 day).
And with that, I will sign off for the year. I wish you and your loved ones a very happy and healthy 2026. We will be back on Friday, January 2 with our MacroQuant Model Update.
The dollar rebound has paused, but not yet peaked. With near-term momentum still intact, we see room for further upside before structural headwinds reassert, favoring selling into strength.