Credit Agricole maintains a positive outlook on the USD for the medium term, expecting a recovery in the second half of 2025 and into 2026. This optimism is based on supportive fiscal policies, easing financial conditions, and persistent inflation.

Factors Driving Usd Recovery
The anticipated recovery is driven by a predicted rebound in US growth during late 2025 and 2026. Factors include the extension of personal income tax cuts, reduced trade tensions, and looser financial conditions.

Persistent inflation may limit the Federal Reserve’s capacity to cut rates, which could enhance the USD’s appeal. Credit Agricole expresses skepticism about claims regarding a shift away from the dollar as a reserve currency, viewing these risks as overstated without a credible alternative.

US policy signals regarding the USD also contribute to the positive outlook. Treasury Secretary Bessent has advocated for a strong USD, and there has been a reduction in attacks on Federal Reserve independence, both seen as contributing to stability.

Despite discussions about structural risks, Credit Agricole believes in the fundamental strength of the dollar. The USD’s status as a reserve currency and its yield advantage are seen as intact, bolstering the bank’s positive medium-term stance.

In straightforward terms, the existing content presents a clear and bullish case for the US dollar over the medium term, pointing to robust support from fiscal policy, economic growth prospects, and restrained monetary easing. The reasoning here hinges on an expectation that expansion in economic output—supported by specific legislative and trade developments—will underpin currency strength. Inflation, while usually seen as a drag, is reframed in this context as a stabiliser, because it puts constraints on deep interest rate cuts, thereby maintaining relatively high yields for foreign investors. That high yield—better than many peer economies—can attract capital flows into USD-denominated assets.

Policy Framework and Market Impacts
Now, consider also the remarks from Bessent, who effectively reinforces the idea that policy continuity remains intact, adding a layer of political reassurance to the mix. Stability in monetary institutions, paired with measured backing for the dollar from top finance officials, reduces uncertainty for market participants. The fact that the right to set interest rates remains unchallenged also signals that the usual mechanism for currency valuation stays preserved. What you’re left with is a policy framework that creates few holes for downside surprise.

In the near term, then, many of the factors holding up the dollar are not speculative but already visible—funding support, income tax positioning, and controlled messaging from policymakers who seem eager to avoid unexpected moves.

Looking ahead, we should closely track how sustained inflation shapes not just broad expectations but also actual Fed positioning. If inflation readings refuse to move decisively lower, it likely delays interest rate cuts beyond what was priced in just weeks ago. Rate differentials may then widen further between the US and others, making the dollar relatively more attractive still.

As we consider price dynamics in derivative markets, implied volatility remains low across multiple tenors. That suggests two things: first, underlying expectations about sharp policy shifts remain muted; second, the skew towards upside dollar protection remains profitable at relatively better terms. Strategy-wise, our bias should favour structures that take advantage of a grinding, upward dollar trend, while protecting against short-term retracements.

This is especially relevant if you’re holding any exposure outside the US. Alongside outright positioning, we believe calendar spreads across USD pairs, particularly those sensitive to real yield differentials, bear watching—especially if data begins to align with the growth projections mentioned earlier. There’s already some visibility into these projections becoming reality, so options pricing still favours early positioning before the larger moves materialise.

We should also not ignore the broader reserve debate. While headlines occasionally circle around ideas of a shifting monetary order, recent evidence remains sparse at best. No currency has been furnished with the capital controls, legal transparency, and deep markets that support global demand on the same scale. As such, it’s reasonable to treat alternative reserve narratives as noise for now.

Most discouraging for dollar bears is that, despite waves of discussion around fiscal fragility or long-term imbalances, actual demand for the greenback has remained resilient, especially during geopolitical strain or macro stress. For us, that behaviour points to ingrained positioning that’s not about to unwind suddenly.

In calendar terms, the coming months may show limited surface volatility. But the positioning payoff is likely being built now. In our own assessment, incorporating upside bias structures and maintaining bullish dollar exposure while the curve remains relatively shallow offers both flexibility and carry, with room to adjust if data surprises to the downside. As near-term policy remains on hold, the space for market conviction is opening.

No narratives or theories displace actual capital flow—and that, thus far, continues to support the direction we see ahead.

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