When a strong USD returns: Winners vs. laggards

FX Navigator (Jul): When a strong USD returns: Winners vs. laggards

29 June 2026

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When a strong USD returns: Winners vs. laggards

Key takeaways

A shift in the Federal Reserve’s messaging is materially supportive for the USD, increasing the likelihood of a break-out from established trading ranges.
The CNY, AUD and NZD may prove more resilient than other currencies during a USD rally.
Lower oil prices may add downside risk for the CAD, leaving it comparatively more exposed.

Our tactical view

^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF.

Source: HSBC

HSBC Positioning Indices

Note: Priced as of market close 26 June 2026

Source: HSBC, Bloomberg

Tactical view

Reduced geopolitical risk may create near-term headwinds for the USD as improved risk appetite reduces safe-haven demand seen during the US-Iran conflict, while lower oil prices could also add pressure as the Strait of Hormuz reopens. However, we expect the hawkish shift in US rate expectations to become the dominant driver, supporting a USD rally in the weeks ahead.
The Federal Reserve’s (Fed) policy outlook is being shaped by US economic resilience, rather than the stagflation trade-off evident elsewhere. Markets have fully priced in one 25bp rate hike by end-2026 (Bloomberg, 26 June). Attention now turns to the non-farm payrolls report (2 July), CPI (14 July), the University of Michigan Consumer Sentiment Index (17 July) and the Conference Board Consumer Confidence Index (28 July) ahead of the Fed’s decision (30 July, 02:00 HKT).
US-led risk sentiment is re-emerging as a theme, supported by sustained AI optimism and strong jumbo US IPO outcomes. This could shift the USD-risk appetite relationship from negative to positive, reinforcing USD upside.

Tactical view

The downtrend in the USD-CNY daily fixing rate has become more gradual and less consistent since early March. This reflects a reassessment of the broader USD outlook and increased market scrutiny of higher fixing rates in recent days (Bloomberg, 25 June).
Near-term RMB sentiment may be weighed down by seasonal and policy factors, including China’s dividend season (May-August) and new regulations on outbound investment (State Council Order No. 837). Additional cyclical headwinds include diverging US-China data surprises, a wider US-China rate differential and softer onshore net FX sales since March — potentially implying a more moderate pace of RMB appreciation.
Structurally, however, the case for broad RMB strength remains intact, supported by RMB internationalisation, productivity gains and trade linkages.

Tactical view

In principle, the EUR should be performing well. The interim peace agreement between the US and Iran supports the EUR through two channels: materially lower energy prices and improved risk appetite. In practice, however, these factors are likely to remain secondary, as they have for some time. The key driver for EUR-USD continues to be the broader USD, with market attention firmly centred on the outlook for Fed policy.
EUR-USD also faces a complication around interest rate differentials. If rate spreads are again becoming the key FX driver , EUR-USD arguably starts from a relatively rich valuation. In addition, it is unclear whether further ECB tightening would be viewed positively by the FX market, given it would be delivered against a weakening growth backdrop. Markets are pricing 25bp of additional tightening before year-end (while our economists expect no further ECB rate hikes this year), on top of the 25bp increase delivered at the ECB’s June meeting.
Cyclical EUR softness could also revive focus on structural and political risks, including a narrowing current account surplus and election-related uncertainty ahead of France’s presidential election in April 2027.

Tactical view

We expect EUR-USD and GBP-USD to move lower in the weeks ahead, partly reflecting a more supportive backdrop for the broad USD.
At the same time, both the EUR and GBP are facing cyclical headwinds, with increasing signs of softer growth.
Relative to the EUR, the GBP appears more vulnerable in the near term as the UK government’s fiscal vulnerabilities are returning to the forefront amid rising domestic political uncertainty. Against this backdrop, EUR-GBP is likely to drift higher in the weeks ahead.

Tactical view

UK Prime Minister Starmer’s resignation has shifted market attention to the leadership contest and the likely policy direction of the next Prime Minister. With limited clarity, the GBP looks more exposed to downside risks than positioned for upside relief. Candidates must declare by 9 July; if the current favourite, Andy Burnham (Polymarket, 22 June), is unchallenged, a swift transition could see him in office by 16 July.
UK-US 2-year rate differentials have narrowed sharply from c66bp in April to roughly 0bp, reducing the “carry” support that has helped underpin the GBP (Bloomberg, 26 June). This reflects the Fed’s hawkish shift (17 June) versus a cautious Bank of England (BoE) hold at 3.75% (18 June), with our economists expecting the BoE to remain on hold through year-end. Focus may turn to UK data, such as labour market (21 July), CPI (22 July) and PMIs (24 July), ahead of the BoE meeting on 30 July.
UK fiscal optics have also deteriorated, with government borrowing exceeding the Office for Budget Responsibility’s (OBR) forecast for a second straight month. Overall, GBP is likely to remain skewed to downside risks in the weeks and months ahead.

Tactical view

USD-JPY has moved back above the previous FX intervention threshold (around 160) without any renewed action from Japan’s Ministry of Finance (MoF). Japanese policymakers are unlikely to resist broad-based USD strength, in our view. USDJPY could still grind higher in the weeks ahead.
Following the Bank of Japan’s (BoJ) 25bp hike on 16 June, we think that negative real rates and JPY depreciation appear to be reinforcing each other in a negative feedback loop. Inflation expectations have risen sharply in recent years; although stronger wage growth has likely contributed, persistent JPY weakness may be the more important driver.
If domestic confidence in the JPY remains fragile, retail investors are likely to retain a strong incentive to allocate savings to overseas assets. For now, however, it looks unlikely that the BoJ will be the catalyst for a sustained JPY recovery.

Tactical view

While Japanese policymakers are unlikely to push back against broad-based USD strength, the JPY still faces an intervention risk that most other currencies do not. As a result, even if JPY continues to weaken versus the USD, it may outperform currencies, like the EUR, in the weeks ahead.
The ECB’s hawkish stance is already well reflected in market pricing, and our economists expect the ECB to hold rates for the remainder of the year, supported by lower oil prices. By contrast, the BoJ is expected to deliver another rate hike in December. If interest rate differentials reassert themselves as a key FX driver, EUR-JPY may drift lower over the weeks and months ahead.

Tactical view

The USD appears better positioned than the CHF as a “safe haven” currency, partly because the Swiss National Bank (SNB) continues to signal a willingness to intervene in FX markets if necessary. This intervention bias can temper CHF safe-haven demand and, at the margin, makes the USD a more straightforward refuge during periods of uncertainty.
A renewed theme of US-led risk appetite is emerging, underpinned by sustained optimism around AI and strong outcomes from jumbo US IPOs. If this dynamic persists, it could shift the relationship between the USD and risk appetite from traditionally negative to more positive. In other words, the USD could strengthen even as broader market sentiment improves.
Taken together, these factors reinforce our expectation of broad USD strength and point to USD-CHF moving higher in the weeks ahead.

Tactical view

Since the Middle East conflict began, the CHF’s low yield has at times left it vulnerable, with the market treating it more like a “risk-on” G10 currency. During periods of elevated oil prices, the CHF’s low carry has provided an incentive to sell the currency despite its traditional safe-haven status. As a result, rate differentials may be an increasingly important driver of recent EUR-CHF moves.
At its 18 June meeting, the Swiss National Bank (SNB) maintained its “increased” willingness to intervene, while adding “if necessary”. For now, this verbal guidance is likely to keep EUR-CHF broadly steady, even as inflation pressures build.
Key releases include June CPI (2 July) to test the SNB’s inflation view, and FX reserves (7 July) for any signs of intervention. Overall, we expect EUR-CHF to remain range-bound in the coming weeks.

Tactical view

In our view, the CAD is unlikely to offer meaningful resistance to broad-based USD strength, particularly as it still appears relatively rich versus its historical relationship with the broader USD.
The CAD may also remain under pressure from interest rate differentials. The June Federal Open Market Committee (FOMC) signalled a potentially more activist Federal Reserve, while the Bank of Canada (BoC) largely reiterated a patient policy stance on 10 June. Markets expect the BoC to keep rates unchanged on 15 July (Bloomberg, 26 June). This has driven a sharp repricing in rate spreads that has been supportive for USD-CAD. That said, much of this adjustment may now be behind us: USD-CAD no longer looks materially misaligned with the rate differential.
A similar point applies to the relationship between USD-CAD and oil prices, where a large part of the adjustment also appears to have already occurred. Overall, we expect USD-CAD to continue moving higher, but at a more measured pace following the strong rally since early May.

Tactical view

The AUD has recently underperformed relative to its typical relationship with risk assets, suggesting scope to recover some lost ground.
Rate differentials have become less influential for the AUD, as the Reserve Bank of Australia’s (RBA) stance looks more balanced than at the start of the year. Attention may turn to labour market data (23 July) and CPI (29 July) ahead of the next RBA meeting on 11 August. Even so, the AUD continues to stand out on an absolute yield basis and, if market volatility keeps easing, it could retain carry appeal.
That said, the AUD is unlikely to be insulated from broad USD strength. With AUDUSD typically driven more by USD dynamics, the AUD’s attractive beta and carry characteristics may be offset by a stronger USD. We therefore expect AUD-USD to trade broadly sideways in the coming weeks.

Tactical view

We expect AUD-USD and NZD-USD to remain broadly sideways over the coming weeks, even if the broad USD stays supported. Both currencies have domestic, idiosyncratic tailwinds that should help cushion them from USD strength.
For the NZD, the key support is higher New Zealand rate expectations, which continue to underpin relative carry and market positioning. For the AUD, support comes from its still elevated nominal yield, which can remain attractive as long as volatility stays contained and carry remains in favour.
With both the AUD and NZD benefiting from their own supportive drivers, we see limited scope for a sustained divergence between them in the near term. As a result, AUD-NZD is likely to trade range-bound in the weeks ahead, with relative rates and risk sentiment driving short-term fluctuations rather than a clear trend.

Tactical view

The Reserve Bank of New Zealand (RBNZ) is well positioned to support the NZD, with markets pricing around a 60% probability of a 25bp rate hike at the 8 July meeting (Bloomberg, 26 June).
Following solid Q1 GDP, which points to a growth upswing despite March spillovers from the Middle East conflict, attention turns to CPI (20 July) to reinforce the case for further RBNZ tightening. These dynamics are broadly supportive for NZD, although the currency’s ability to benefit fully remains constrained by the broad USD, which continues to be the dominant driver of the pair.
We subsequently see NZD-USD moving sideways in the coming weeks.

Note: *Priced as at 19:20 HKT on 26 June 2026

Source: HSBC, Bloomberg

Dovish

Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.

Hawkish

Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.

MoM / YoY

Month on month / Year on year

PMI

Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).

IMM data

International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).

G10

G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.

Fed / FOMC

Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.

ECB

European Central Bank (Eurozone’s Central Bank).

BOE

Bank of England (UK’s Central Bank).

BOJ

Bank of Japan (Japan’s Central Bank).

BOC

Bank of Canada (Canada’s Central Bank).

RBA

Reserve Bank of Australia (Australia’s Central Bank).

RBNZ

Reserve Bank of New Zealand (New Zealand’s Central Bank).

SNB

Swiss National Bank (Switzerland’s Central Bank).

Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.

50 DMA: 50-day simple moving average number represents the average price of an index or a currency pair over the past 50 days.

Support (S), Resistance (R): Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of an index or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.

HSBC Positioning Indices: The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).

Tactical view where a currency pair is referenced (e.g. USD/JPY): An up (é) / down (ê) / sideways (➔) arrow indicates that the first currency quoted in the pair is expected by HSBC Global Investment Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks.

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FX Navigator (Jul): When a strong USD returns: Winners vs. laggards

Key takeaways

Our tactical view

HSBC Positioning Indices

DXY

USD-CNY

EUR-USD

EUR-GBP

GBP-USD

USD-JPY

EUR-JPY

USD-CHF

EUR-CHF

USD-CAD

AUD-USD

AUD-NZD

NZD-USD

Glossary

Explanation of terms

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