Dollar Depreciation Will Resume in 2026: 3-Minutes MLIV

Group 1 - The dollar is expected to resume a structural depreciation trend in 2026, influenced by various factors including pressure from the Trump administration on the Fed [1][4] - The current monetary policy setting is easier than traditional economics would suggest, coinciding with the end of easing cycles in other parts of the world [2] - Despite less pain from the trade war than anticipated, its effects continue to impact the economy negatively, with repatriation flows from US corporates having propped up the dollar recently [3] Group 2 - A weaker dollar is seen as an easing of financial conditions, benefiting global stock markets, particularly outside the US [5] - The depreciation of the dollar amplifies returns from foreign investments, encouraging diversification trades [6] - The US market's exceptionalism is expected to decline, with a decrease in its share of global market capitalization anticipated to continue into 2026 [6] Group 3 - There is a belief in the market that the Fed will be pressured to cut rates more aggressively than it would otherwise, which could positively impact asset prices [8][9] - The potential for a steepening of the yield curve due to central bank actions has not yet materialized, despite being a concern for the market [9]