Dollar Strength Isn’t Over: A Selective FX Opportunity Emerges

Ahmad Mortazavi
Dec 20, 2025
4 min read

🌍 Big Picture

Global markets closed the week navigating a familiar late-cycle tension: easing monetary policy in developed markets alongside growing divergence across emerging economies. In the U.S., softer inflation data and a cooling labour market reinforced expectations that the Federal Reserve has entered a sustained easing phase. Treasury yields declined, financial conditions loosened modestly, and risk assets stabilised after mid-week volatility.

However, this easing impulse has not translated into uniform weakness in the U.S. dollar. Instead, currency markets are increasingly driven by relative fundamentals, policy credibility, and growth differentials. While the dollar softened against several developed-market peers, it remained resilient — and in some cases strengthened — against emerging-market currencies facing domestic constraints.

Commodities reinforced this divergence. Oil prices fell to multi-year lows, easing inflation pressures globally but tightening fiscal conditions for energy-linked emerging markets. At the same time, precious metals and copper remained elevated, reflecting both hedging demand and structural investment themes. Equity markets told a similar story: developed markets stabilised, Europe outperformed, and emerging markets advanced selectively rather than broadly.

The takeaway is clear: this is no longer a simple “weak dollar, buy EM” environment. Instead, markets are rewarding selectivity, particularly in FX, where differences in inflation control, fiscal discipline, and policy credibility matter more than headline rate cuts. It is within this framework that USD/BRL stands out as a compelling tactical and structural opportunity.

📊 Assets at a Glance

Equities

United States: Indices finished the week little changed overall. The Nasdaq outperformed as AI-linked names rebounded late in the week, while the Dow lagged amid rotation and profit-taking.
Europe: European equities outperformed globally. The STOXX 600 reached fresh highs, led by banks, defence, and cyclicals, supported by easing inflation and stabilising growth expectations.
Emerging Markets: EM equities posted modest gains, with Latin America outperforming on commodity dynamics and foreign inflows, while Asia remained mixed.

Fixed Income

U.S. Treasuries: Yields declined following softer CPI and the Fed’s December rate cut, with markets pricing additional easing in 2026.
Emerging Market Debt: Local-currency EM bonds attracted renewed interest as inflation trends improved and several EM central banks continued or signalled easing cycles.

Currencies

U.S. Dollar: Weakened broadly early in the week but stabilised as rate differentials and risk sentiment reasserted influence.
Emerging FX: Performance diverged sharply. High-carry and policy-credible currencies held firm, while others — including the Brazilian real — struggled to attract sustained inflows.

Commodities

Oil: Brent and WTI fell to the lowest levels in several years, reflecting ample supply and easing geopolitical risk.
Gold: Extended its rally to fresh record highs, supported by lower real yields and central-bank demand.
Copper: Held near record levels, underscoring resilient structural demand despite softer global growth signals.

Crypto

Bitcoin and major cryptocurrencies continued to consolidate after a sharp correction from October highs, behaving increasingly like macro-sensitive risk assets rather than independent hedges.

📅 Key Events Next Week

Monday — UK Growth & Investment

UK GDP (Q3 final), Business Investment, Balance of Payments

Stronger data: GBP supported; UK yields firmer; reduces urgency for aggressive BoE cuts.
Weaker data: GBP softer; gilts bid; strengthens rate-cut expectations; defensive UK equities outperform.

Tuesday — U.S. Growth Pulse + RBA Minutes

US GDP (Q3), Durable Goods Orders, Consumer Confidence

Upside surprise: USD firmer; yields rise; EM FX pressured; cyclicals outperform tech.
Downside surprise: USD softer; bonds rally; equities supported by easier policy expectations.

Australia: RBA Meeting Minutes

Hawkish tone: AUD supported; Asia risk sentiment cautious.
Dovish tone: AUD weaker; rate-sensitive assets supported.

Wednesday — U.S. Labour Signal (Thin Liquidity)

US Initial Jobless Claims

Higher claims: Reinforces Fed easing path; USD weaker; bonds and equities supported.
Lower claims: USD and yields firmer; pressures high-duration assets.

(Liquidity thins into Christmas — moves can be exaggerated.)

Thursday — Christmas Day

Global market closures

No major data risk; headline-driven FX volatility possible in thin markets.

Friday — Japan Inflation & Activity

Japan Tokyo CPI, Retail Sales, Industrial Production

Stronger inflation/activity: JPY strengthens; carry trades unwind; risk assets cautious.
Weaker data: JPY softer; carry appetite improves; supportive for risk assets and EM FX.

(Boxing Day holidays keep liquidity thin in Europe.)

💡 Investment Idea: Long USD/BRL

Fundamental & Macro Rationale

Despite a global shift toward lower rates, Brazil’s macro backdrop remains challenging. Falling oil prices weigh on fiscal revenues, while domestic growth momentum has softened. Although Brazil offers high nominal rates, the real carry advantage has narrowed as inflation moderates and the central bank continues easing policy.

At the same time, the U.S. dollar retains relative strength. Even as the Fed cuts rates, U.S. assets continue to attract capital, and the dollar benefits from safe-haven demand during periods of global uncertainty. This combination — Fed easing without dollar capitulation — is historically supportive for USD strength against structurally weaker EM currencies.

In short, USD/BRL reflects policy divergence rather than rate convergence. Brazil’s easing cycle and fiscal sensitivity contrast with the U.S.’s more controlled slowdown, creating a favourable backdrop for USD appreciation versus the real.

Technical Structure (Multi-Timeframe)

Monthly: USD/BRL remains in a long-term uptrend, holding above rising moving averages and consolidating above the 5.30–5.40 zone — a former resistance now acting as structural support.
Daily: Price has reclaimed key moving averages and is pressing into a multi-month resistance band near 5.55–5.60. Momentum indicators are constructive, suggesting scope for continuation rather than exhaustion.
H1: Higher highs and higher lows are intact, with pullbacks finding support near short-term EMAs — a classic trend-continuation profile.

Trade Thesis

Bias: Long USD/BRL
Narrative: Macro divergence + EM fragility + bullish technical structure
What could invalidate it: A sharp improvement in Brazil’s fiscal credibility or a disorderly sell-off in the U.S. dollar — neither of which is currently evident.

Bottom Line

This week’s market action reinforces a critical lesson for late-cycle investing: not all emerging markets benefit equally from global easing. In FX, selectivity matters more than ever. USD/BRL captures this divergence clearly — combining supportive macro dynamics with a well-defined bullish technical structure.

As global liquidity conditions loosen unevenly and risk appetite fluctuates, USD/BRL stands out as a disciplined way to express dollar resilience against an emerging-market currency facing persistent domestic constraints.

Prepared by the Scientia Capital Management Team. This publication is based on verified market data and analysis. The views expressed are for informational purposes only and do not constitute investment advice. Scientia Capital Management combines market expertise with AI-driven intelligence to empower investors worldwide.