FX Outlook 2026: Our Main Calls

But recent months have marked a shift. With trade deals providing a stabilising anchor, market participants have recalibrated, refocusing on fundamentals: rate differentials, growth trajectories, debt sustainability, and commodity exposure.
We believe this return to disciplined analysis – ‘playing the ball’ – is a preview of what’s to come for FX in 2026. Below are our key calls for next year.
Source: ING, Refinitiv
Fundamentals Will Be the Name of the Game in G10
By March 2026, we expect the to have delivered all its cuts for this easing cycle, reaching a terminal rate of 3.25%. Most other G10 central banks will either be close to finishing or already done with their own cutting cycles. As investors continue to adjust to President Trump’s unpredictable policy delivery, we expect markets to increasingly shift focus away from the US.
The absence of a dominant USD trend – so central to FX dynamics in 2024 and 2025 – opens the door for relative value trades across the G10. With rates now back at or near neutral, greater certainty on the trade picture, we believe activity data will play a more prominent role in driving currencies. The key questions become: which currencies have the strongest fundamentals, and which can pair those with political stability and sound public finances?
The euro looks well-positioned to at least hold its 2025 gains, supported by our macro team’s forecast for eurozone growth in the 1.0–1.5% quarter-on-quarter annualised range in the first half of next year and 1.7–1.8% in the second half. That said, political uncertainty in France remains a key risk. The pound offers attractive carry, but this is unlikely to fully offset a softer growth outlook and the potential re-emergence of fiscal concerns. Sterling will stay vulnerable. Positive standouts could include Sweden’s krona and the Australian dollar, while the Canadian dollar appears on unstable ground.
The Strong Dollar Isn’t Coming Back
The periods of USD instability in 2025 were sharp and driven by unforeseen events: the German fiscal spending boom, Trump’s ‘Liberation Day’ tariff announcement, escalating trade tensions with China, and attacks on the Fed. The dollar has now built greater resilience to such episodic risks, but in 2026 we expect a shift in the key drivers – from event-driven volatility to more structural forces. These factors, in our view, should prevent a meaningful USD rebound and potentially lead to further depreciation.
With a terminal Fed policy rate of 3.25% in 2026 already priced in, the downside potential for USD rates could be seen as limited. However, the implications for FX markets may persist, primarily because Fed cuts reduce the cost of hedging USD exposure via increasingly shorter-term forward tenors.
Source: Danish Central Bank, ING Calculations
The role of FX hedging flows was pivotal in preventing the dollar from rebounding as US assets recovered from the ‘Liberation Day’ shock. Danish pension funds data shows USD hedging ratios rose from 62% to 72% in May 2025, yet in 2015-2016 and during Covid, those ratios were steadily around 80%. Despite calmer FX conditions, the perception that most risks to the dollar are domestically driven persists. This continues to incentivise hedging, particularly among debt-focused institutional investors, who tend to favour shorter-dated hedges. As FX hedging costs for US asset exposure decline in the coming quarters, we expect rising hedge ratios to limit dollar upside.
We then need to assess the dollar through the ‘fundamentals lens’ we discussed in our first call. In our view, positive growth surprises are more likely to emerge in the eurozone than in the US, where tariffs are expected to remain a persistent drag. Additionally, a resurgence of concerns around US debt sustainability and the build-up of political risk premium ahead of the November 2026 midterm elections are both tangible risks.
Low Volatility Continues To Favour Carry
We’re going to hear a lot about neutral rates in 2026. The is widely thought to be already there with a deposit rate of 2.00%. The Fed is expected to get the policy rate closer to neutral at 3.00/3.25%, even though a debate is emerging within the Fed that the neutral rate may be closer to 4.00%. And is expected to very slowly take its policy rate towards the lower bound of neutral near 1.00% in late 2026.
A year when core policy rates could arrive and stay at neutral is virtually unheard of. Over the last quarter of a century, the Fed has rarely, if ever, had its policy rate at neutral. The closest it probably came to that was 2.50% policy rate in 2019, before an equity correction and then Covid took rates back to the floor again.
Barring a bond market sell-off, 2026 looks like it could be another low one for both interest rate and FX volatility. Low volatility should trigger even more interest in the carry trade. That can leave the yen vulnerable as investors switch to funding carry trades in yen. And what we have seen in 2025 has been investors moving out along the EM credit curve and into frontier markets. FX positions in Egypt and Nigeria have been some of the best performing carry trades of the year.
Looking ahead, we see authorities keeping the lira stable in Turkey and expect broadening interest in carry into other parts of Africa and also the CIS.
Note: calculated using weights of the Bloomberg Dollar Index
Source: ING, Refinitiv
Yuan Will Remain Stable, Parts of Asian FX Attractive
We’re running back our call for a stable and rangebound USD/CNY and have nudged the fluctuation band lower to 6.90-7.30 in 2026. The call looks a lot less controversial this time around compared to last year, after the People’s Bank of China proved it had the willingness and capability to keep the yuan stable even in the face of heavy market pressure at the peak of the trade war. Within the context of currency stability, we generally are leaning towards a gradual appreciation of the CNY, as yield spreads should move in favour of CNY strengthening, and buying pressure could ramp up if exporters begin to convert proceeds back to the CNY at a faster rate.
Continued stability in the yuan and a slightly softer dollar should generate broader interest in Asian currencies. 2025 was a year for the low yielders, but in 2026 we’re looking for one of the high yielders, the Indian rupee, to make a comeback. We see solid fundamentals for the economy, contained fiscal risks and ongoing direct investment for supply chain diversification. The rupee should deliver an impressive recovery if US-India trade tensions can soften and also should enjoy continued demand on the back of bond inflows.
Political Battles Will Decide Whether CEE Sees Another Strong Year
Our baseline scenario suggests that Central and Eastern Europe will see a soft-landing next year after this year’s rapid rally. However, beneath the surface lies a political battle and fiscal dominance that could easily sway FX trends – either delivering another stellar year for CEE currencies or erasing this year’s gains entirely.
The general election in the Czech Republic brought a change of government which promised more spending. This threatens to inflame the inflation problem. Given the current economic rebound, the Czech National Bank could be the first central bank in the region to hike interest rates, providing fresh momentum for the CZK.
In Poland, general elections are not due until 2027, but after the opposition’s victory in the presidential election, a consolidation of public finances looks unlikely. The National Bank of Poland may need to act swiftly, relying on a stronger zloty to help contain inflation. Conversely, a potential fiscal cliff could push the currency in the opposite direction.
In Hungary, general elections are scheduled for April next year. Market participants view a possible change in government as a potential catalyst for restarting EU funds, similar to Poland in 2023. However, if the current administration retains power, the market could question current FX long positions, putting downward pressure on the forint.
Source: ING, national government calendars
Commodities: Metals and Energy Diverge
Commodity trends have been a big driver of currencies in recent years and should continue to play a significant role in 2026. Gold has surged this year well beyond what fundamentals would suggest. Yet the prospect of lower real interest rates in the US and continued doubts about the stability of both fiat currencies and government bond markets should keep gold in demand. The National Bank of Poland has been the biggest buyer of gold this year and most recently the Bank of Korea has said it plans to buy more, too.
Our commodities team also likes the copper story next year, where grid expansion, electrification and renewable infrastructure should keep copper bid at a time of tighter balances. Currencies in Latam like Chile’s peso, Peruvian sol and the South African rand should see continued demand here.
It’s a different story for energy, however. A glut of supply for both crude oil and natural gas should keep this sector under pressure. This should add to the woes of the Canadian dollar, already battling on the trade front and at risk from further Bank of Canada easing.
ING’s Commodities Forecasts
Source: ING
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