Synopsis:

Credit Agricole maintains an above-consensus medium-term bullish outlook on the USD, expecting a recovery in H2 2025 and 2026 driven by supportive fiscal policy, easing financial conditions, and sticky inflation. While some investors argue structural headwinds could undermine the dollar, the bank sees these risks as overstated.

Key Points:

• Near-Term Recovery Drivers: Credit Agricole sees a likely US growth rebound in late 2025 and 2026 due to:

  1. Extension of personal income tax cuts

  2. Easing trade tensions

  3. Looser financial conditions

• Fed Outlook: Persistent inflation could limit the scope of rate cuts, supporting USD carry appeal.

• Skepticism on De-Dollarization: While some investors cite Trump’s weak dollar bias and the risk of a “Mar-a-Lago accord” as threats, Credit Agricole sees no credible alternative to the USD as a reserve currency.

• US Policy Messaging: Treasury Secretary Bessent has emphasized a strong USD, and Trump has backed off attacks on Fed independence, both viewed as stabilizing signals.

Conclusion:

Despite ongoing debate around structural risks to the dollar, Credit Agricole sees fundamental strength and policy dynamics as supportive. The USD’s reserve status and yield advantage remain intact, reinforcing the bank’s above-consensus bullish stance for the medium term.