Doha: Qatar National Bank (QNB) has projected that the US dollar is likely to undergo further valuation adjustments, moving towards what it considers more "fair" levels. This expectation is driven by the normalization of US economic indicators and broader portfolio re-balancing.
According to Qatar News Agency, QNB's weekly commentary highlights the significant volatility experienced in major foreign exchange (FX) markets last year, with the US Dollar Index (DXY) showing a 9.6 percent depreciation in 2025. This marked one of the poorest performances for the dollar in nearly a decade, while other major currencies such as the Euro, Swiss Franc, and Pound Sterling appreciated against it.
QNB noted that there is no consensus regarding the future direction of the USD, with some analysts predicting support from US "exceptionalism" due to higher productivity growth. However, QNB posits that there is potential for further downward adjustments for the dollar.
The bank identifies three main factors supporting its assessment. First, despite its depreciation in 2025, the USD remains overvalued by more than 17 percent based on real effective exchange rates (REER). This overvaluation indicates a need for more long-term adjustments as the USD still holds a substantial premium over its notional "fair value." The bank also cites higher US inflation compared to major trade partners as a barrier to full adjustment.
Secondly, QNB points out that shifts in the economic policies of major advanced economies could reduce their growth and interest rate differentials with the US. With the US having limited scope for further fiscal expansion, other economies are moving toward more expansionary measures, potentially diminishing the US's growth advantage and favoring other currencies over the USD.
Lastly, the bank highlights the potential for portfolio rebalancing to favor increased capital allocations to non-US assets. With global portfolios heavily weighted in US assets due to historical economic outperformance, even small shifts in asset allocation could lead to significant capital flows away from the USD. Additionally, lower US interest rates increase the appeal of higher-yielding currencies, particularly in emerging markets.
QNB concludes that further adjustments to the USD are expected, with the currency likely to align more closely with fair valuations as US exceptionalism normalizes and global portfolios rebalance.