SEB’s latest FX Pilot report paints a clear picture: the U.S. dollar’s strength is fading. After a summer of consolidation, the bank expects the greenback to enter a new depreciation cycle as the Federal Reserve edges closer to rate cuts and as Europe’s growth outlook stabilises.
The Swedish lender identifies the euro, Swedish krona and Japanese yen as the most attractive currencies in this environment. All three, SEB argues, are well positioned to benefit from narrowing interest rate differentials, stronger European equities and increased capital flows away from the United States. The bank forecasts that the euro-dollar rate could climb toward 1.225 in the first quarter of 2026, provided U.S. rates fall in line with expectations.
The outlook is less positive for others. SEB anticipates further depreciation of the Chinese yuan as Beijing keeps monetary policy loose to support its export-driven economy. The Norwegian krone is seen underperforming against the Swedish krona, reflecting weaker oil prices and lower rate support. Sterling is expected to remain structurally weak as inflation normalises, even if a credible budget in November could trigger a short-lived rebound. The Swiss franc is also projected to lose ground against the euro as geopolitical risks ease and safe-haven demand fades.
Commodity-linked currencies are given little room to shine. The Australian and New Zealand dollars are seen as overly tied to global risk sentiment and equity markets, making them unattractive in SEB’s current framework. The Canadian dollar, by contrast, is considered undervalued after tariff-driven weakness, though the bank stresses conviction remains low and any recovery would likely be gradual.
In sum, SEB signals that the dollar’s best days are behind it — and that investors should look toward Europe and Japan for the next leg of currency market gains.
Source: SEB, FX Pilot – September 9, 2025, SEB Research
