According to a report cited by ChainCatcher, Abbas Owainati, an analyst at Charles Stanley, highlighted that the US dollar is likely to continue facing challenges into 2026 due to several structural and macroeconomic factors.
One of the key concerns is the long term fiscal sustainability of the United States. Rising public debt levels and persistent budget deficits have increased investor unease, putting pressure on confidence in the dollar over the longer horizon. These fiscal issues are increasingly viewed as structural rather than temporary, which limits the dollar’s upside potential.
In addition, policy uncertainty has weakened the dollar’s traditional role as a global safe haven. In an environment where monetary and fiscal signals remain mixed, investors are becoming more cautious about relying on the US dollar as a defensive asset during periods of market stress.
Owainati also pointed out that non US investors are increasing their use of currency hedging strategies. As more global investors hedge their dollar exposure, demand for the currency weakens, contributing further to downward pressure. At the same time, shifts in global capital flows are reducing the relative dominance of dollar denominated assets.
Another important factor is monetary policy. With the Federal Reserve expected to continue cutting interest rates, the yield advantage of the dollar is likely to narrow. Lower interest rates reduce the attractiveness of holding dollar assets, especially when compared to higher yielding or faster growing markets.
A weaker dollar, however, may have positive implications for emerging market assets. It can ease the burden of foreign currency denominated debt, improve capital inflows, and enhance returns through stronger local currencies. As a result, emerging market equities could benefit if dollar weakness persists.
Overall, the report suggests that continued pressure on the US dollar could reshape global investment dynamics, potentially creating opportunities in regions that have been constrained by dollar strength in recent years.
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