Invesco expects USD to remain weak with up to four rate cuts next year

The US dollar is to remain weak, with three to four rate cuts expected from the US Federal Reserve in 2026 without recovery in the job market, contributing to optimistic global market outlooks, said Brian Levitt, chief global market strategist at Invesco.

At the 2026 Annual Investment Outlook, Levitt stated that declining US interest rates, along with increased government spending in Europe, Japan, and China, is forecast to boost the global economy and bring it out of the mid-cycle slowdown.

He mentioned that the US dollar may weaken next year with rate cuts, which would benefit developed market currencies such as the Japanese yen and the British pound, as well as emerging market currencies with positive interest rate differentials and favorable fundamentals.

As the current environment supports bias towards non-US assets, alternative investment remains attractive. Cryptocurrencies, supported by favorable conditions, are also expected to perform well alongside other risk assets, Levitt added. 

Regarding the Chinese market, David Chao, global market strategist of Asia Pacific at Invesco, believes that China's economic growth is still expected to approach five percent in 2026, as expansionary monetary and fiscal policies will help boost infrastructure investment and expand domestic demand.

He also believes that the uncertainty brought about by tariffs has peaked, expressing confidence in China's economic performance next year.

Chao noted that emerging markets are expected to outperform next year, describing Asia as a potential rising star, followed by Latin America, such as Brazil, which has performed well due to eased monetary policies. 

Chao anticipates the Japanese yen will be one of the best-performing currencies next year, as the Bank of Japan is expected to raise interest rates at least twice, widening the interest rate differential between Japan and the US.