Strategist Forecasts Secular Bear Market for Overvalued US Dollar
New York, Thursday, 5 March 2026.
Marc Chandler warns the dollar is entering a long-term downturn, citing OECD data showing it is overvalued by 50% against peers as investors increasingly diversify away from US assets.
Extreme Valuation Metrics Signal Reversal
Marc Chandler, Managing Partner and Chief Markets Strategist at Bannockburn Capital Markets, argues that the greenback is currently positioned in the early stages of a secular bear market [1]. Central to this thesis is the extreme overvaluation of the currency relative to its peers. According to the OECD’s purchasing power parity model, the U.S. dollar is overvalued, while major counterparts like the Japanese yen and the euro are undervalued by approximately 50% [1]. Chandler projects that this valuation gap will begin to close significantly over the coming months, forecasting that the euro will finish 2026 above $1.20, potentially reaching the $1.22 to $1.25 range [1]. Similarly, he anticipates the dollar-yen exchange rate will retreat, ending the year closer to 150 [1].
Structural Diversification Amidst Conflict
While the dollar has traditionally benefitted from a safe-haven bid during geopolitical crises—such as the ongoing war involving the U.S., Israel, and Iran—Chandler notes a shifting structural tide [1]. He identifies a growing trend of nations and investors actively diversifying risk away from the U.S. dollar and U.S. Treasuries [1]. This long-term capital rotation is occurring even as immediate volatility grips global markets. On March 5, 2026, risk assets suffered a severe rout, with the South Korean Kospi tumbling approximately 7.25% and Japanese indices falling 3% [2]. Simultaneously, commodities surged on supply fears, with WTI crude oil trading above $77.25 per barrel [2] following reports that China has instructed top oil refiners to suspend exports of diesel and gasoline [3].
Central Bank Divergence and Rate Outlooks
The path of the dollar is further complicated by divergent central bank policies. The Federal Reserve is now expected to steer clear of rate cuts until at least September 2026 [1], a stance that contributed to the U.S. 10-year Treasury yield rising nearly seven basis points to 4.10% on March 5 [2]. In contrast, Japanese authorities are balancing economic fragility with currency weakness. While the Finance Ministry of Japan has warned of intervention to cap the dollar near 158 yen [1], the Bank of Japan has faced economic contractions in two of the last four quarters, prompting markets to push expectations for the next rate hike out to the second half of 2026 [1].