De-dollarisation speeds up: JP Morgan forecasts 10–20% USD decline against major currencies

De-dollarisation is accelerating, according to the latest analysis conducted by American financial titan JP Morgan, which highlights how weaponised sanctions are steadily eroding trust in the US dollar’s role as the world’s dominant reserve currency. In a rare convergence, US stocks, bonds, and the dollar have all declined simultaneously—an atypical and troubling sign that investor confidence in American market supremacy is undergoing a significant shift driven by this growing de-dollarisation trend.

JP Morgan’s most recent forecast suggests that the US dollar’s long-standing overvaluation is beginning to correct, with the potential for a 10–20% depreciation against major global currencies such as the euro and Japanese yen. This downward trajectory is occurring alongside a sharp pullback in foreign investment in US equities, with recent weeks witnessing some of the largest capital outflows on record. The timing and scale of this shift point to a broader reset in the global financial order.

Sanctions spur reserve diversification

The economic outlook in the US is facing intensifying pressure. JP Morgan notes that tariffs are likely to have a disproportionately negative impact on the American economy relative to global peers. The bank’s recession probability estimate has climbed from around 20% to a worrisome 45%. Simultaneously, the Federal Reserve’s pivot toward interest rate cuts is compressing yield differentials that once underpinned the dollar’s strength, further fuelling concerns about a sustained decline in its global standing.

The growing use of sanctions as a geopolitical tool has significantly accelerated global moves toward de-dollarization. Countries are increasingly reevaluating their reliance on dollar-denominated assets following the freezing of Russia’s foreign reserves in 2022 and recent threats to Colombia’s dollar holdings. These developments have cast serious doubts on the dollar’s reliability as a neutral and stable reserve currency, prompting nations to diversify their holdings and explore alternative financial arrangements.

With approximately $26 trillion in US assets held by foreign investors, even modest shifts in portfolio allocation could unleash significant and unpredictable market volatility. While US assets continue to be fundamentally attractive, JP Morgan’s assessment of de-dollarization implies that investors should prioritize geographic and currency diversification to mitigate emerging risks.

JP Morgan’s in-depth research reveals a notable and unexpected erosion in the dollar’s traditional “confidence premium” during 2025. Unlike past downturns, the dollar is now falling in tandem with US equities and bonds—a pattern seen historically only about 6% of the time for US assets, compared to roughly 30% for more volatile emerging markets such as Brazil. This breakdown in the dollar’s safe-haven role raises alarms about the currency’s perceived resilience and its ability to buffer against market shocks.

Investment strategy implications

The JP Morgan report explains, that “the dollar’s longstanding overvaluation is beginning to unwind, which could result in a 10%–20% decline against major peers such as the euro and Japanese yen over the medium term. We don’t see this as a breakdown in the dollar, but it is a reset.”

The firm further emphasises that they do not believe "investors need to overhaul their asset allocations, and the United States remains a valuable core holding. But recent market action reminds us that over-reliance on any single market carries risks. In a shifting environment, intentional diversification across regions and currencies is crucial.”

By Nazrin Sadigova