In 2026, the global economy remains resilient, making yields the dominant driver in currency markets and underpinning the success of the carry‑trade strategy, Deutsche Bank AG said in its latest review.
Georg Saravelos, the bank’s senior analyst, said the risk‑adjusted carry trade has become the key factor in exchange‑rate formation this year. That trend has fully outweighed the impact of major global shocks such as the war in the Middle East, the appointment of a new Federal Reserve chairman, and sharp volatility in tech stocks.
The main bullish catalyst for the dollar was a hawkish revision of expectations about US monetary policy. However, Georg Saravelos notes that for the dollar to show much stronger gains, the market would need to price in rate hikes of 75–100 basis points or more. Only such a move would restore the dollar’s status as a high‑yield currency. For now, the expert sees no basis for a broad dollar rally or for a further collapse in the euro, given Europe’s growth potential.
Meanwhile, the Japanese yen remains under pressure because short‑term yields lag those of other major currencies. Deutsche Bank currently prefers the Swiss franc as a funding currency for carry trades. At the same time, Japanese authorities’ attempts to bolster domestic investment could provide support for the yen.
As a historical parallel, the bank cites the 2014 reform of Japan’s Government Pension Investment Fund. Back then, expectations alone about the redistribution of domestic capital triggered large moves in FX markets, even though the policy’s actual implementation took far longer than originally planned.