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Charu Chanana warns of potential dollar weakness due to fiscal risks and mixed Federal Reserve signals.

Currency strategists are warning that the U.S. dollar may face increased pressure despite its recent strength. Charu Chanana, chief investment strategist at Saxo, noted that while higher Treasury yields have supported the dollar in 2026, these yields may not provide consistent support if they reflect fiscal risks and heavy government borrowing rather than strong economic growth. Chanana highlighted that investors must distinguish between yields driven by a risk premium and those driven by by fundamentals. She noted that a breakdown in this relationship could lead international investors to seek geographical diversification. Other experts, such as George Saravelos of Deutsche Bank, pointed to uncertainty regarding the Federal Reserve's inflation reaction function as a dollar-negative factor. Saravelos also suggested that an increase in the FIMA facility, if requested by the administration, could act as indirect monetary financing of U.S. Treasuries, further weakening the dollar. Conversely, Elias Haddad of BBH argued that a stock market correction might not hurt the dollar as much as some fear, as foreign investors might rotate into safe-haven Treasuries instead of abandoning dollar assets entirely.

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