American Exceptionalism Returns, Dollar Outlook Neutral
AI summary card
American Exceptionalism Returns, Dollar Outlook Neutral
Deutsche Bank believes that while US economic indicators are strong, there is limited momentum for dollar appreciation, shifting to a neutral view.
- US GDP growth expectations return to top three in G10, exceeding the average by 3/4 of a percentage point.
- US economic data surprises have been extremely positive recently.
- Fed hawkish repricing has pushed the 2-year yield spread up by 40 basis points.
- US stocks have outperformed other global regions by 7% over the past three months.
- Global earnings growth has matched the US at 20%+ over the past six months.
- The dollar has not strengthened despite rising interest rates.
- Among major currencies, the report recommends selling EUR/JPY.
Report interpretation
Overview
This report examines whether American exceptionalism is returning in 2026 and its impact on the dollar exchange rate. The report notes that while multiple US economic indicators are impressive, the momentum to convert this into dollar strength is insufficient, leading to a neutral rather than bullish view on the dollar.
Core views
US Economic Bright Spots: GDP growth expectations have returned to the top three in G10, expected to be about 0.75 percentage points above the G10 average. Recent economic data surprises have also been very positive, in stark contrast to the Eurozone. Earnings revisions in the US are far better than in other regions. Additionally, Fed policy expectations have been hawkishly repriced over the past month, with the 2-year yield spread rising significantly by 40 basis points. US stocks have performed excellently over the past three months, outperforming other global regions by 7%, with the impact of the AI cycle clearly visible. Challenges and Countervailing Factors: US stocks still lag globally on both 6-month and 12-month bases. Despite economic leadership, corporate earnings growth has now caught up with the US globally - both have grown by over 20% in the past six months. Global investors, who bought US stocks at a record pace in 2025, may reduce their positions in 2026. On the interest rate front, despite the Fed repricing, the US 2-year Treasury yield still hasn't entered the top three in G10, and this rate movement has not driven the dollar higher; the two have merely 'reconnected'. Conclusion and Trading Recommendations: Given these conflicting flows, the report adjusts its dollar outlook to neutral. The oil price story and further Fed repricing constitute upside risks, while a resolution to the Iran war could bring downward pressure. In the current environment, the report prefers selling EUR/JPY among major currencies because Japanese economic data outperforms the Eurozone, but interest rate repricing direction is opposite, and the BoJ has recently taken a more hawkish stance.
Analysis framework
The report systematically compares the US with other global regions (particularly G10 countries) across multiple dimensions - economic growth, economic data surprises, earnings revisions, monetary policy expectations, and stock market performance - to assess the degree of American exceptionalism's return. By analyzing changes in these indicators and their historical transmission relationship to the dollar exchange rate, the report concludes that despite strong US fundamentals, it's not enough to support a significant strengthening of the dollar, thus arriving at a neutral conclusion. Meanwhile, based on the divergence in relative economic performance and interest rate expectations, it provides a trading recommendation for EUR/JPY.
Methodology notes
Comparative analysis of macroeconomic indicators
The report compares differences between the US and G10 countries in key macroeconomic indicators like GDP growth, data surprises, earnings revisions, and interest rates to judge the US's relative performance and its impact on exchange rates.
Key data
- US GDP growth exceeds G10 average3/4 percentage pointsExpected outperformance
- 2-year yield spread changeUp 40 basis pointsFed hawkish repricing
- US relative performanceOutperformed by 7%Better than other global regions over past three months
- Past six-month earnings growth20%+Both US and other global regions achieved this growth
Impact & implications
The report believes the return of American exceptionalism provides some support for the dollar but is not enough to drive it higher, thus maintaining a neutral view. Under the influence of cross currents, higher oil prices and further Fed hawkish pricing could bring upside risks, while geopolitical events like a resolution to the Iran war could pressure the dollar. For forex traders, the report recommends focusing on the EUR/JPY currency pair due to divergences in economic performance and monetary policy expectations between Japan and the Eurozone.