The Weak-Dollar Bet That Lifted Latin America Is Losing Steam
REGIONAL · MARKETS
Key Facts
—The trade. a weak US dollar drove foreign money into Latin American stocks, bonds and currencies through 2025 and early 2026.
—The shift. Bank of America says conviction is fading because much of the move has already happened.
—The pivot. investors are unwinding dollar shorts against developed currencies while keeping them against emerging ones.
—The trigger. a firmer dollar and a strong US jobs report have dimmed near-term Federal Reserve rate-cut hopes.
—The caveat. the region’s carry appeal remains; the dollar against the real fell about 9.65% in 2025.
For more than a year, a falling US dollar was the engine pulling global capital into Latin America. Now one of Wall Street’s biggest banks says the easy phase of that trade may be over — not because the case has collapsed, but because so much of it has already played out.
The weak-dollar trade that defined the year
Through 2025 and into early 2026, the dominant story in Latin American markets was external rather than local. A weakening US dollar, a global rotation out of US assets, rising metals prices and expectations of looser monetary policy combined to steer foreign money toward emerging markets, with Brazil, Mexico and Colombia among the principal destinations.
The US currency lost roughly 9.65% against the Brazilian real over 2025, and regional equity indices repeatedly hit record highs as institutional inflows arrived.
The logic was straightforward and powerful. A softer dollar improves financial conditions across the region, lifts returns on local-currency debt and equities, and rewards the carry trade — borrowing in low-yield currencies to hold high-yield ones such as the real or the Mexican peso.
For investors with historically low allocations to the region, Latin America looked like a rare combination of cheap positioning and improving fundamentals.
Why Bank of America’s conviction is fading
The shift is one of degree, not direction. David Beker, Bank of America’s head of economics for Brazil, told reporters that the base case is still a weak dollar, but that conviction has diminished — in part because the currency has already moved so much this year.
More telling is how positioning is changing: Beker noted that investors who had been short the dollar against the rest of the world are now removing that short against developed-market currencies while keeping it against emerging ones. In plain terms, the broad bet against the dollar is being trimmed, even if the specific bet favouring emerging currencies survives.
Other desks echo the caution. Citi has flagged the likelihood that the dollar resumes its natural strengthening as the world’s reserve currency from the second half of 2026, while noting Brazil, Chile, Colombia and Mexico sit near historical averages with room to absorb external shocks.
The near-term catalyst is the United States: a firmer dollar and a strong May jobs report have pushed back hopes of imminent Federal Reserve rate cuts, removing one of the props under the weak-dollar trade. When US rates stay high, the relative appeal of holding emerging-market currencies narrows.
More: Latin America news in English, every day from The Rio Times.
What it means for the region’s investors
None of this amounts to a call to abandon Latin America. Bank of America strategists have argued that structural factors — low portfolio allocations, the region’s role as a commodity supplier, and a political drift toward more market-friendly governments — still support demand for assets such as Brazilian equities.
The bank’s own currency strategist has put it bluntly: investors who want carry in emerging markets have to be somewhere in Latin America. The question is whether the inflows that have already arrived can be sustained, or whether much of the upside has been captured.
The practical response among cautious investors has been to stay constructive while hedging. In Argentina, for instance, Bank of America has favoured a dollar-hedged local bond, reasoning that much of the real appreciation tied to the reform programme has already occurred and that a global inflation shock — driven by high oil prices from the Middle East conflict — could force the Fed to keep rates higher for longer.
That is the core risk to the whole trade: an emerging-market-unfriendly world in which the dollar refuses to weaken. For now, the message from the region’s biggest backers is not retreat, but a reminder that the easiest money in the Latin America trade has probably already been made.
Frequently Asked Questions
What is the weak-dollar trade?
It is the strategy of moving money into Latin American stocks, bonds and currencies on the expectation that a falling US dollar will boost their returns — a dominant theme through 2025 and early 2026.
Why is conviction fading now?
Bank of America says much of the dollar’s decline has already happened, and a firmer dollar plus strong US jobs data have dimmed near-term Federal Reserve rate-cut hopes.
Does this mean investors are leaving Latin America?
Not necessarily. Analysts remain constructive on the region’s carry appeal and structural draws, but are trimming the broad dollar bet and hedging more of their exposure.
What is the main risk to the trade?
A global inflation shock that keeps the dollar strong and forces the Fed to hold rates high, which would narrow the appeal of emerging-market currencies.
Frequently Asked Questions
Is the weak-dollar trade into Latin America over?
Bank of America says conviction is fading because much of the move has already happened. Investors are unwinding dollar shorts against developed currencies while keeping them against emerging ones.
What changed the outlook for the dollar?
A firmer dollar and a strong US jobs report have dimmed near-term hopes of Federal Reserve rate cuts. That removes one prop under the trade.
Does Latin America still look attractive to investors?
The region's carry appeal remains, and the dollar fell about 9.65% against the real in 2025. But the easy gains from the weak-dollar move look largely behind it.
Connected Coverage
For the bullish counterpoint, see our coverage of UBS calling Brazil “the centre of the map” for global investors.
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error
LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.
Read More from The Rio Times