Dollar Trend Reverses: Wall Street Turns Bullish, HSBC Flags 2026’s Top FX Pain Trade

Wall Street has sharply reversed its dollar outlook. The once-popular “de-dollarization” narrative has faded, with JPMorgan, BofA and Goldman Sachs turning bullish on the greenback, backed by the Fed’s hawkish stance, resilient US economy and AI-fueled capital inflows.

HSBC warned in a June 29 report that a stronger dollar could become one of H2 2026’s biggest global pain trades. Led by Paul Mackel, the team noted: “Dollar strength will be painful, but we think the FX pain trade will be more explosive US dollar appreciation.”

The bank expects gradual dollar strength lasting into H1 2027, with risk of explosive upside acceleration from hawkish Fed surprises and escalating geopolitical tensions. Risks have risen post the Fed’s June meeting, as policymakers focused purely on inflation and widened US-centric rate differentials.

Solid US data and AI-driven capital inflows have lifted the Dollar Index to its highest level since mid-May 2025.

Divergent global policies further support the dollar. Falling oil prices tempered ECB hike expectations, while BOJ cautiousness has pushed the yen to a 40-year low.

CFTC data as of June 23 shows speculative funds held $34.3 billion net USD long positions, hitting a 16-month high and signalling strong bullish positioning.

Top Wall Street firms share this upbeat view: JPMorgan sees persistent US rate advantages, while Goldman Sachs cites AI inflows and solid earnings as lasting dollar supports.

HSBC also flags a pain trade in US Treasuries. Contrary to early-2026 curve-steepening bets, sticky inflation and a hawkish Fed triggered sustained yield curve flattening. Year-to-date, 2-year yields rose over 60bps, versus a 20bps rise in 10-year yields.

Barclays offers a cautious outlook: the dollar is set for H2 gains, but upside will be volatile. With Fed hike bets partially priced and US data nearing peaks, a one-way dollar rally is unlikely.