BofA: Large USD Down Years Often Come in Pairs
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Historical data suggests that significant dollar depreciation years often occur consecutively, according to Bank of America. In 2025, the DXY index fell 9.4% against G10 currencies, marking the second-largest decline in nearly two decades.
By analyzing the five years since 1975 with the highest correlation to 2025's dollar trajectory, the report finds that the greenback continued to weaken in the subsequent year on four occasions, with an average decline of approximately 8%. The five most correlated years (1986, 2002, 2017, 1994, and 2006) showed an average correlation of +81% with 2025.
The bank identifies 1995 as the most relevant analogue for 2026, characterized by a tech-driven soft landing, Fed rate cuts in the second half, and inflation near 3% rather than 2%. This scenario implies a further 4.2% dollar decline, aligning with the forecast for the DXY to reach the 95 range in 2026.
While 2018 was an exception due to Fed hikes and trade tensions, the report expects Eurozone recovery and Asian growth upgrades in 2026. A key driver to watch is global equities outperforming US equities, which could further reinforce the broad downward trend for the dollar against G10 currencies.