Large U.S. dollar selloffs often carry over into a second year, according to Bank of America, strengthening expectations that the greenback could remain under pressure in 2026 following last year’s weak performance.
In 2025, the U.S. dollar dropped 9.4% against G10 currencies, as tracked by the DXY index, marking the second-worst annual decline of the past 20 years.
BofA strategists analyzed historical periods that most closely resemble the dollar’s 2025 price action. Their research showed that in four of the five closest comparisons, dollar weakness continued into the following year.
“History suggests large USD selloffs tend to occur in consecutive years,” said a team led by Howard Du in a research note.
Across these key historical parallels, the dollar typically extended its losses in the second year. Based on the average outcome of the top five analogs, the strategists estimate an additional downside of roughly 8% for the U.S. dollar in 2026.
Among those historical cases, 1995 stands out as especially relevant for the current outlook. That period featured technology-led growth, a soft landing for the U.S. economy, and interest rate cuts by the Federal Reserve in the second half of the year.
In 1995, the dollar weakened by 4.2%, broadly in line with BofA’s current projection for the DXY index to fall toward the 95 level in 2026.
The main exception to this historical pattern was 2018, when the dollar strengthened amid Federal Reserve rate hikes, escalating U.S.-China trade tensions, and sluggish growth in the Eurozone.
Despite a modest rebound late in 2025, BofA strategists say the dollar remains in a broad downtrend against G10 currencies. Meanwhile, global equity markets have started 2026 outperforming U.S. stocks.
They added that this divergence is worth close attention, as equity flows and currency hedging activity could become a significant bearish force for the U.S. dollar in 2026, potentially accelerating further weakness.
