Key Moments
- HSBC flags increased U.S. policy and geopolitical uncertainty as key headwinds for the dollar.
- The bank favors G10 growth currencies, with AUD, NZD, and SEK identified as top major picks for the year.
- HSBC expects “high-quality EM FX,” particularly in Asia, to continue outperforming, extending trends seen in 2025.
Mounting U.S. Policy Risks Pressure the Dollar
The U.S. dollar has experienced a challenging two-week stretch, coinciding with the renewed prominence of Trump at the start of the year and what the article describes as his “shenanigans.” According to the commentary, inconsistent handling of geopolitical risks and attacks on Federal Reserve independence have been two prominent factors weighing on the greenback, especially over the past week.
HSBC suggests that these developments could mark only the beginning of a more volatile period. The bank frames the backdrop as follows:
“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.”
HSBC’s Currency Preferences in G10
Despite some pullback in expectations for rate hikes this year, HSBC anticipates that G10 growth-oriented currencies will take the lead within the major FX space. The bank singles out the antipodean currencies – the Australian dollar (AUD) and New Zealand dollar (NZD) – along with the Swedish krona (SEK) as its most favored major currencies for the year.
| Segment | HSBC View | Highlighted Currencies |
|---|---|---|
| G10 growth currencies | Expected to lead performance despite some retracement in rate hike expectations | AUD, NZD, SEK |
| Emerging markets FX | “High-quality EM FX” expected to outperform | Asian currencies especially noted among top gainers |
| US Dollar (USD) | Seen staying near the back of the performance pack, barring a shift in key drivers | Potential upside only if uncertainty recedes and structural/cyclical supports strengthen |
Ongoing Strength in Select Emerging Market Currencies
Beyond the G10 space, HSBC also projects that “high-quality EM FX” will continue to perform well. This is described as a continuation of the pattern observed in 2025, with Asian currencies in particular cited as being among the strongest performers.
Conditions Needed for a Dollar Recovery
Although HSBC currently expects the dollar to lag, the bank does outline potential conditions under which the U.S. currency could regain momentum. The firm writes:
“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”
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