US dollar will strengthen, Asia growth will ease in 2026: Standard Chartered

[SINGAPORE] With the US economy outperforming expectations, Standard Chartered believes that no further monetary policy rate cuts are in the cards for 2026, and the US dollar is poised to move higher. 

Relative to “pretty downbeat expectations”, the US economy continues to surprise, said global head of research and chief strategist, Eric Robertsen.

US domestic demand has stayed resilient, the bank said in its 2026 economic outlook report. This was “supported by strong investment growth and the wealth effect from the sustained equity-market rally”.

And despite soft headline employment growth – partly reflecting supply side shocks such as stricter immigration policy – layoffs have stayed low.

“Clearer signs” are also emerging that tariffs are putting upward pressure on goods inflation in the US. Policymakers may prefer a cautious approach, in order to avoid a broadening of tariff inflation pressures, the bank said.

Robertsen said the Federal Reserve need not cut rates given the growth and inflation outlook, contrary to market expectations of a 50 basis point cut in the current easing cycle.

Stronger dollar?

Robertsen believes that the “hysteria around de-dollarisation, the selling of dollar assets and the diversification away from the US” has been overstated, and that the US dollar could instead rally 5 to 8 per cent this year.

Divya Devesh, co-head of FX research, Asean and South Asia, said he has instead observed re-dollarisation in Asia.

The bank’s bullishness on the US dollar comes from a view of improved US growth and higher productivity, he said, as well as the artificial intelligence (AI) theme, while the Fed cuts priced in by markets may be “a little bit too excessive”.

When the central bank tightened rates aggressively about three years ago, the US dollar became a high-yielding currency relative to most Asian currencies, he explained.

Across Asia, Stanchart is observing that exporter conversion remains relatively low as they hold on to the US dollar.

For example, Taiwan’s exports are up 50 or even 60 per cent in some months on a yearly basis, yet its exporter conversion ratio remains below 3 per cent, he added.

And while AI is positive for growth and foreign investments in Asia, Devesh noted an “appetite among retail investors across Asia to invest in US stocks, to invest in tech stocks”.

“That sell-America narrative hasn’t really panned out,” he said. Retail buyers are still investing more in US equities, “sometimes at the expense of domestic equities”.

For example, outflows from South Korea into overseas equities reached over US$100 billion last year, he said. Such figures show “the kind of outflows that are happening, simply because everyone wants a piece of this AI story”, he said, adding that this is a negative for regional currency markets.

Meanwhile, to boost returns, some institutional investors’ inflows to Asia – which were traditionally FX unhedged – now tend to be FX hedged, Devesh said.

On the flip side, Asian institutional investors raised their hedge ratios in Q2 2025 when the dollar was selling off – but were “very quick to unwind” these FX hedges when the dollar stabilised.

Eye on Asia

For Asean exporters, external demand will be less of an engine in 2026, said Edward Lee, chief economist and head of FX, Asean and South Asia, adding that Asean FX may underperform compared with other regions.

While the bank expects US growth to pick up in 2026, growth in Asia is expected to slow.

Growth will remain challenging for China this year.

The innovation-driven new economy – which includes advanced manufacturing, green energy and digitalisation – has surpassed real estate to contribute a bigger share of China’s gross domestic product, at close to between 17 and 18 per cent, said Lee.

The property-sector correction will likely continue to weigh on domestic demand, though likely less so, due to its now-lower share of GDP, the report said. Lee said the sector’s share is now about 13 per cent.

The local government’s fiscal revenue comes from land revenue, which has started to contract more again in recent months, on a yearly basis, he said.

Lee also flagged a sharper-than-expected fall in investments. While real estate investments have been decreasing for some time, infrastructure and manufacturing investments have also been “slowing down a lot”.

For infrastructure, this may be partially due to China’s debt swap, where funds may have gone towards paying downstream suppliers rather than infrastructure. Manufacturing investments are “falling off the cliff”, he said, pointing to the country’s efforts to tackle the issue of excess capacity.

And when China is relying on external demand because of its excess capacity, “the rest of us cannot rely on China”, he said.

On last year’s performance, he noted that within Asia, exporters performed better than expected, while domestically oriented economies, mainly the Philippines and Indonesia, performed worse.

Asia exporters benefited from AI-driven real demand, as well as front-loading – mainly for electronics – on the back of US tariffs.

The latter is starting to come down for the Asean-6, Lee said, adding that there will need to be payback.

For domestically oriented economies, inefficient fiscal disbursements and seasonal disruptions may have dragged growth, but 2026 will likely be a better year, he said.

No more easing

An “unprecedented perfect storm” in 2025 allowed regional central banks to ease monetary policy”, said Robertsen, pointing to low inflation, currencies strengthening against the dollar, and declining oil prices.

But 2026 could be very different, he said.

Lee believes that Indonesia, the Philippines and Thailand may be able to cut rates “a bit more”, but the easing era is coming to a close.

Singapore, meanwhile, is likely to be the first in the region to tighten policy, to reverse the two rounds of pre-emptive easing in January and April last year.

With growth slowing and inflation starting to pick up, he believes there is scope for the Republic’s central bank “to remove some of its accommodation”, likely via tightening policy by 50 basis points in April.

While core inflation has risen, this has been led by health insurance costs rather than being broad-based, Lee said. Growth, while very strong, has been led by electronics, as well as volatile pharmaceuticals. And unit labour cost is still generally soft.

“So I think there’s time for them to not do it in January… but rather remove some of their pre-emptiveness in April.”