The US dollar will slide against peers again in 2026 though the moves will be more muted than in 2025, according to Emirates NBD.
The regional banking group expects the dollar will decline compared with peer currencies in 2026 as policy differentials increasingly move against it.
Among major central banks, the Federal Reserve will stand out as still cutting policy while peers will either keep rates on hold or lean towards tighter policy, Emirates NBD said in a report.
On the surface, the US dollar doesn’t look like a natural candidate to weaken. Growth in the US economy will be faster than all major peers in 2026, based on consensus projections, and inflation will also be materially higher.
But a softening labour market is encouraging more dovish views from the Fed even amid the higher inflation environment.
The researcher’s expectation is for another 75 bps of cuts from the Fed in 2026 compared with no change in policy from the European Central Bank and hikes from the Bank of Japan.
Emirates NBD expects that the euro will extend its 2025 gains against the dollar in 2026 although the scale of appreciation will be far more muted.
Economic activity in the eurozone remains sluggish — the regional economy expanded by just 1.4% year-on–year (y-o-y) in Q3-2025 — but that is a material improvement from the static levels of activity recorded in 2024.
Inflation in the eurozone will remain relatively stable in 2026, close to target levels of around 2%. After cutting rates by 100 bps in 2025 the researcher does not expect that the ECB will cut rates any more in 2026, keeping the deposit facility at 2%.
Several ECB policymakers have even been making a case that upside risks to growth may warrant the bank needing to actually hike rates though we are not expecting that to be an imminent change in direction.
While the eurozone’s economy may not be showing signs of vigour, it does appear to be at least stable.
Narrowing rate differentials will favour the euro in 2026 though the momentum on rates will be more to do with the Fed than the ECB or eurozone economic dynamics.
The rearcher expects EURUSD will move from 1.17 at the end of 2025 to 1.21 by the end of 2026, an appreciation of about 3.4% compared with 13% gains in 2025.
The Japanese yen looks the most likely candidate for strengthening in 2026 though near-term political noise means that any gains could be delayed until later in the year.
Economic activity will decelerate markedly in 2026 as trade and investment cool. But in an effort to restore some growth and inflation momentum, Japan’s new government has approved a large stimulus package worth a total of $135bn in direct and indirect support measures, the report said.
