CIBC monthly FX outlook: Why the US dollar selloff is likely over |

Published: Wednesday, February 11, 2026 · 6:08 PM | Updated: Wednesday, February 11, 2026 · 6:08 PM

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Investing.com — The latest foreign exchange outlook from CIBC Economics suggests that the recent volatility in the US dollar was driven by a unique confluence of independent geopolitical triggers and speculative flows rather than a fundamental shift in currency value. As these temporary drivers resolve, analysts project a gradual move toward a weaker greenback through the first half of 2026, creating a divergent landscape for major pairs like the CAD, EUR, and AUD.

The U.S. dollar’s sharp decline in late January was a product of independent catalysts rather than a fundamental “debasement” of the currency. According to the note from CIBC, the selloff was driven by a slurry of events, including geopolitical threats regarding Greenland and coordinated rate checks in the USD/JPY pair.

Market volatility was further amplified by heavy speculative activity in gold, silver, and bitcoin, alongside significant month-end hedging flows. CIBC economists noted that “dollars have since recovered as many of these drivers have since resolved themselves,” suggesting a near-term support floor for the DXY at 98.50.

The Canadian dollar’s recent strength largely reflects the broader U.S. dollar falling out of favor due to geopolitical conflicts. However, CIBC warns that the loonie faces headwinds as market attention shifts back to the renegotiation of the CUSMA trade agreement.

Analysts expect USD/CAD to remain near current levels in the immediate term, even as other dollar pairs continue to sell off. “A combination of an improving global cyclical backdrop and rate convergence between the Fed and BoC will have USD/CAD continuing lower towards 1.34,” CIBC noted regarding the year’s second half.

The European Central Bank’s decision to leave the deposit rate at 2.0% for a fifth consecutive meeting met broad market expectations. Policymakers continue to describe risks as balanced, suggesting that current interest rate levels remain in a “good place” for the Eurozone economy.

While the ECB does not target exchange rates, officials remain wary that a stronger euro could amplify disinflationary pressures and hamper GDP growth. CIBC expects a protracted period of policy inertia through 2026, provided EUR/USD does not trade aggressively beyond the 1.21 threshold.

The British pound faces near-term pressure as the Bank of England moves closer to a neutral policy stance of 3.50%. A surprise 5:4 split among policymakers has made the upcoming March meeting “live” for a potential interest rate cut.

Governor Andrew Bailey is expected to join the dovish faction of the MPC unless upcoming wages data provides a significant upside surprise. Despite these immediate challenges, CIBC suggests that “the correction of an overly aggressive medium-run rate profile suggests that H1 GBP challenges are set to moderate into H2.”

The Japanese Ministry of Finance remains on high alert following coordinated “rate checks” in January aimed at curbing yen depreciation. Markets are currently wary of testing the 160 level, though a cautious narrative from the Bank of Japan supports a gradual uptrend in USD/JPY.

Upcoming election results could provide a brief boost to the pair, but resistance is expected to hold firm near the 158.00 mark. CIBC strategists believe 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.

The Reserve Bank of Australia has adopted a more hawkish tone, characterizing its recent move as a necessary adjustment rather than a standard tightening cycle. Strong labor data, including a drop in the unemployment rate to 4.1%, has fueled expectations for further hikes in the first half of the year.

Governor Michele Bullock has maintained an open-ended stance, stating that “nothing is ruled in or out” regarding the future path of interest rates. CIBC expects the Australian dollar to reach 0.72 by the end of the second quarter, bolstered by the RBA’s hawkish lean relative to a neutral Federal Reserve.

CIBC monthly FX outlook: Why the US dollar selloff is likely over

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