US Dollar Could Drop 40% after AI Tech Bubble, Warns RBC

The U.S. dollar may face a prolonged downturn reminiscent of the post-dot-com crash era, according to RBC Capital Markets, which cautions traders to brace for a potential 40% decline in the greenback amid shifting global trade patterns and evolving safe-haven preferences.

In a note to clients, Richard Koshinos, FX strategist at RBC Capital Markets, said the factors that supported the dollar’s strength over the past decade are now turning into structural headwinds. “This concentration has worked well for the past fifteen years,” he wrote, “but it poses significant risks in today’s environment. Any meaningful change in demand or relative performance could have major repercussions in currency markets.”

The U.S. currency has been under persistent pressure this year, weighed down by political uncertainty surrounding President Donald Trump’s policies. Despite temporary support from strong equity markets and inflows of passive global capital into U.S. assets, analysts warn that these trends may not be sustainable.

Over the last two decades, global investors have shown a marked preference for high-priced U.S. assets, particularly equities, a dynamic that, has artificially inflated the dollar’s value, according to RBC.

Koshinos drew parallels between the current macroeconomic setup and the early 2000s, when capital retreated from overvalued tech markets following the dot-com crash. That shift led to a 40% drop in the dollar from its peak to trough between 2001 and 2008.

He warned that a similar unwinding could unfold in the coming years as valuation extremes, trade realignments, and changes in safe-haven behavior weigh on the dollar’s long-term prospects.

“Rising asset valuations and shifts in global trade are creating new challenges for the dollar,” Koshinos said. “Long-term risk management should be a top priority as we enter 2026.”

RBC notes that investors are increasingly diversifying toward alternative safe havens, such as the euro and yen, as confidence in U.S. monetary policy consistency wanes.

To guard against a sustained decline in the dollar’s value, RBC recommends traders consider synthetic call options on the U.S. Dollar Index, along with bullish binary options on the euro and yen.

For more traditional investors, the bank suggests simpler hedging structures, such as a two-year call option on EUR/USD with a strike price of 1.30 (implying a roughly 12% drop in the dollar), and a two-year put option on USD/JPY with a strike price of 130 (signaling a 15% decline in the dollar’s value).

RBC’s analysis also highlights how the current environment differs from the early 2000s. The growing weight of private and illiquid assets in global portfolios may amplify volatility during periods of market stress.

“Historical lessons from the post-2000 period offer valuable guidance,” Koshinos concluded. “But today’s mix of technological change, geopolitical tension, and unconventional monetary policy calls for a fresh approach, investment frameworks are no longer traditional.”