Dollar Bears Eye Further 4% Decline as '1995 Mirror' Emerges

Following a punishing 2025 that saw the US Dollar Index (DXY) shed 9.4% against G10 currencies—the second-largest annual drop in two decades—strategists at Bank of America (BofA) are warning that the greenback is poised for a further 4.2% correction into 2026, potentially driving the index down to the 95.00 level.

The Quantitative Case for 'Double Drops'

BofA's quantitative analysis highlights a historical tendency for dollar selloffs to occur in consecutive years. Reviewing data back to 1975, the bank identified that in the top five historical instances most correlated with the current price action, the dollar continued to fall in the subsequent year four times out of five.

1995: The Macro Mirror

Detailed analysis suggests that 1995 serves as the most accurate macro-economic parallel for 2026.

Risks to the Outlook

While the base case is bearish, BofA notes that a reversal similar to 2018 (when the USD rallied 4.7% after a down year) remains a tail risk. However, conditions for a rebound—specifically renewed Fed hikes and growth shocks in Europe and China—are currently absent.