Latin American Currencies Gain Favor in Bank of America's 2026 Outlook as Dollar Expected to Slide

Bank of America expects the U.S. dollar to weaken in 2026 and is recommending investment strategies tied to Latin American currencies, particularly the Brazilian real, according to a foreign-exchange outlook presented to investors and reported by Bloomberg.

Analysts at the bank told the outlet that factors are aligning for a potential depreciation of the dollar next year, noting that Latin America remains attractive for investors seeking returns through carry trade strategies.

"If you want carry in emerging markets, you have to be somewhere in Latin America," said Adarsh Sinha, Bank of America's co-head of FX strategy for Global Investment Banking, as quoted by Bloomberg.

The bank maintains a positive view on the real, including relative positioning against the Colombian peso. Sinha said being long the Brazilian real has been "a fairly popular trade," adding that despite heavy positioning, "the price action has been quite good."

He cited Brazil's macroeconomic fundamentals as supportive, saying that "there is still a lot of carry in Brazil," even with expected rate cuts and political uncertainty tied to next year's elections. He described the election as the main event risk but said it does not diminish the currency's attractiveness.

Bank of America also sees opportunities in regional interest-rate markets as multiple central banks continue rate-cut cycles. The bank projects that by December 2025 the real will strengthen from BRL 5.40 per dollar to BRL 5.25 while forecasts show mixed trajectories for other regional currencies, including a weaker Mexican peso and Argentine peso and a slightly weaker Colombian peso and Chilean peso.

The broader thesis depends on expectations that the U.S. Federal Reserve will move more decisively toward rate cuts in the second half of 2025, compressing yield differentials and improving conditions for emerging-market assets. "People want to be short the dollar going into 2026, but they are waiting for the catalyst," Sinha said, pointing to potential shifts in U.S. fiscal and monetary policy and improved sentiment toward Europe or China.

Additional forecasts from other banks reinforce the regional outlook. JPMorgan Private Bank recently wrote that Latin America is becoming an increasingly essential supplier of minerals, energy, and commodities needed for global technological and energy transitions.

Goldman Sachs, on the other hand, projects that emerging markets will outperform developed markets over the next decade, with Latin America expected to deliver earnings-per-share growth of 8.4% annually, ahead of several other regions.