The US Dollar has regained momentum in recent weeks, supported by resilient economic data, rising Treasury yields and continued demand for US assets.
Credit Agricole believes “King USD” remains firmly in control for now, although the bank expects some of the Dollar’s recent advantages to fade over the medium term.
The bank argues that the AI investment boom continues to underpin the US economy by attracting overseas capital, supporting growth and keeping inflation sticky enough to maintain expectations for a relatively hawkish Federal Reserve.
According to Credit Agricole, “the USD smile is alive and well”, with geopolitical uncertainty, safe-haven demand and a less dovish Fed continuing to support the Greenback.
However, the bank also cautions that the Dollar is becoming increasingly overbought and overvalued. It warns that markets may be pricing a more aggressive Federal Reserve than ultimately materialises, while concerns over the US fiscal outlook and gradual de-dollarisation remain longer-term headwinds.
Reflecting this balance, Credit Agricole expects only a gradual easing in Dollar strength.
The bank forecasts EUR/USD at 1.14 in September, 1.13 by December and March 2027, before recovering to 1.17 by the end of 2027.
It also sees GBP/USD at 1.32 in September, easing to 1.31 by year-end before strengthening to 1.39 by the end of 2027.
While Credit Agricole expects the Dollar to remain supported in the near term, it believes structural headwinds should gradually re-emerge as US exceptionalism begins to moderate.
