The latest monthly foreign-exchange outlook from CIBC Economics frames the late-January collapse in the US dollar as the product of several temporary, independent pressures rather than a deep-seated depreciation of the currency. Analysts at the bank argue that the multi-sigma selloff reflected a concatenation of geopolitical headlines, targeted market interventions and heavy speculative flows in risk-sensitive assets.
According to the note, the dollar rout was amplified by separate developments - geopolitical threats tied to Greenland and coordinated "rate checks" in the USD/JPY market were singled out as near-term catalysts. At the same time, speculative positions in gold, silver and bitcoin, together with pronounced month-end hedging flows, added volatility and momentum to the move.
CIBC reports that many of those episodic drivers have since dissipated, with the bank noting that "dollars have since recovered as many of these drivers have since resolved themselves." On that basis the research team places a near-term support floor for the dollar index around 98.50, and projects a gradual tilt toward a weaker greenback through the first half of 2026 as transitory pressures fade.
USD/CAD and trade renegotiation risks
The Canadian dollar's recent outperformance is portrayed largely as a relative move tied to dollar weakness rather than an independent surge in Canadian fundamentals. CIBC cautions, however, that the loonie may confront renewed headwinds as market attention refocuses on the renegotiation of the CUSMA trade agreement.
For the immediate term, the bank expects USD/CAD to hover near current levels even if other dollar pairs continue to slide. Looking further into the year, CIBC's view is for USD/CAD to move lower toward 1.34 in the second half, driven by a combination of an improving global cyclical backdrop and a narrowing of interest-rate differentials between the Federal Reserve and the Bank of Canada.
Euro remains on hold as ECB signals policy inertia
The European Central Bank's decision to keep the deposit rate at 2.0% for a fifth meeting in a row was in line with market expectations, according to CIBC. Policymakers' characterization of risks as balanced supports the view that current policy settings remain appropriate for the Eurozone economy.
While the ECB does not set exchange-rate targets, officials are mindful that a materially stronger euro could increase disinflationary pressure and weigh on GDP. CIBC anticipates a prolonged period of policy inertia through 2026 provided EUR/USD does not trade aggressively above a 1.21 threshold.
Pound pressured as BoE moves toward neutral
The British pound is described as facing near-term downside as the Bank of England shifts closer to a neutral policy stance near 3.50%. The note highlights a recent 5-4 split among policymakers, making the upcoming March meeting effectively "live" for the possibility of a rate cut.
CIBC expects Governor Andrew Bailey to align with the dovish faction unless wage data delivers a material upside surprise. Over the medium term the bank suggests that the correction of an overly aggressive rate profile should help ease H1 challenges for sterling into the second half of the year.
Japan remains reactive; USD/JPY seen as range-bound
Japan's Ministry of Finance has remained vigilant following the January coordinated rate checks aimed at curbing yen depreciation. Markets are cautious about testing the 160 level, and CIBC notes that a measured narrative from the Bank of Japan supports a gradual uptrend in USD/JPY.
Upcoming elections could produce a brief lift for the pair, but resistance is expected to hold close to 158.00. Looking further out, CIBC strategists flag that with Japan's MoF staying reactive, "we think there are more US-driven medium-term downside risks to USD/JPY" as the year progresses.
Australia's labor strength supports further RBA tightening
The Reserve Bank of Australia has adopted a firmer, more hawkish tone, with policymakers characterizing their latest move as an adjustment rather than part of a standard tightening cycle. Notably strong labor-market data, including a fall in the unemployment rate to 4.1%, has reinforced expectations of further rate increases in the first half of the year.
RBA Governor Michele Bullock has kept the future path of policy open, stating that "nothing is ruled in or out." On this basis, CIBC projects the Australian dollar to reach 0.72 by the end of the second quarter, supported by the RBA's relatively hawkish stance compared with a neutral Federal Reserve.
The bank's overall assessment positions recent FX turbulence as largely episodic, with a stabilizing dollar and differentiated outcomes across major currencies. For market participants, the note underscores that policy settings, geopolitical developments and speculative flows will remain critical determinants of FX trajectories in the near term.