QNB expects US dollar depreciation to persist over the medium and long term. In its latest weekly report, Qatar National Bank cited key economic factors driving this trend, even after the steep decline already seen this year—considered the most significant since 1973.
According to the report, several factors have converged to weaken the dollar. These include narrowing US economic outperformance, the currency’s overvaluation, and massive foreign asset accumulation in the United States. QNB emphasized that global cooperation is necessary to manage these imbalances and ensure stable currency adjustments.
Importantly, the US Dollar Index recorded its worst start to a year since President Nixon unpegged the dollar from gold in 1973. The decline has impacted all major currencies in the index basket, including the euro, yen, pound, Canadian dollar, krona, and Swiss franc.
The report outlined three core arguments for continued depreciation. First, QNB noted a likely reduction in the growth gap between the US and other advanced economies. Previously, US GDP growth outpaced the eurozone by an average of 220 basis points. However, between 2025 and 2027, this difference may shrink to 70 basis points.
This shift would favor a stronger euro, especially since the euro makes up nearly 58% of the Dollar Index. Countries like Germany are expected to increase public investment, while the US faces fiscal tightening and slowing growth.
Second, QNB expects US dollar depreciation due to significant overvaluation. Analysts use real effective exchange rates (REER) to assess currency value. As of May 2025, the US dollar was overvalued by 17% compared to long-term fair value estimates. This misalignment points to a medium-term correction.
Third, the US faces structural financial risks. Its negative net international investment position (NIIP) now stands at $24.6 trillion, or 88% of GDP. This imbalance suggests long-term capital outflows, which could further weaken the dollar.
In conclusion, QNB expects US dollar depreciation as global capital flows shift and inflation-adjusted exchange rates normalize. While short-term volatility may occur, long-term indicators point toward a weaker dollar in the years ahead.
