What prospects for the US dollar in 2026?

The US dollar was very stable in the second half of 2025, and volatility fell to very low levels. We do not see this changing in the early part of 2026. The new year arrives, of course, with a new dynamic in the shape of the US Administration’s capture of Venezuelan President Maduro. However, these days such episodes might be a shock but are not much of a surprise, particularly as the US had been signaling its intentions for some time.

In short, financial markets have probably been semi-prepared for just such an escalation, and with Venezuela’s position in the world global oil supply league not what it was, even the oil market has seen a relatively muted response. The action has not even given the currency market a chance to test out the US dollar’s safe-asset qualities. If you remember, the dollar’s safe asset status was seriously challenged last spring as President Trump’s taper tantrum upended riskier assets like stocks, sent risk aversion soaring – but sent the dollar down.

The question is whether this episode marks the end, or at least the beginning of the end, of the US dollar’s safe-asset status. And will the dollar rise or fall when ‘risk-off’ events occur in the future? Steven Barrow, Head of Standard Bank G10 Strategy does not know the answer to this yet, and it looks as if the tensions in Venezuela will not give us the opportunity to find out. Instead, it looks as if Venezuela will be an issue that’s in the background for the FX market, not the foreground. It could be the start of developments that do eventually have FX connotations should, for instance, the US move onto other countries or regions, like Greenland and so provoke much deeper strains with Europe. But he thinks this unlikely.

With the Venezuelan ‘shock’ unlikely to disturb the US dollar, it will be down to other shocks or surprises to reintroduce volatility into the comatose G10 FX market. In the ‘shock, but not a surprise’ category would be a Supreme Court decision to disallow many of Trump’s tariffs. It was thought that the Court’s decision would come before the end of 2025 but it did not and should arrive, instead, early this year.

Steven Barrow expects the Court to rule against the tariffs and the betting market thinks likewise. With the rejection of tariffs seemingly anticipated by the market and other routes open to the Trump Administration to claw back tariffs through different trade acts, Steven Barrow rather doubts that the Court’s ruling will lead to a substantial decline in the US dollar. But neither does he see the Court’s ruling giving the dollar any positive impetus unless, of course, it surprisingly decides to endorse the legality of the tariffs.

No doubt other surprises and shocks will come along in 2026 that could have positive or negative implications for the US dollar. But leaving shocks aside, the key in Steven Barrow’s view is whether the events of last year, particularly the underperformance of US assets, notably stocks, will see an increase in investors redistribution of assets away from the US and into other developed and developing countries. Large investors are like super tankers; it can take a long time for them to change course. So even though the tariff shock and US asset underperformance have been with us for many months now, we suspect that many domestic and global investors have yet to make significant changes to their asset allocations.

For instance, the majority of the flows seen last year appeared to reflect the decisions of US investors to increase their allocations to overseas assets; there was far less evidence that foreign investors scaled back their US holdings significantly. If this starts to happen in 2026, it could generate another notable slide in the US dollar even in the absence of any dollar-sapping shocks.

“Putting these factors together, we see the US dollar trading in a stable-to-moderatelyweaker fashion in 2026. The US dollar fell by almost 10% last year but we anticipate that its losses in 2026 will only be around half of this amount, and we would not be surprised if the US dollar’s weakness is greater outside of the major currencies”, said Steven Barrow.