This is a rewritten and expanded version of the article originally published on Forex Factory by ForexLive Analyst Justin Low. The content examines USD trends through 2026 while covering the outlook for major currency pairs and commodities such as gold. Below is a detailed breakdown of the market themes, fundamentals, and technical context shaping the US dollar (USD) and its key counterparts: EUR/USD, USD/JPY, and gold.
U.S. Dollar Outlook Into 2026: The Broad Picture
As we move into mid-2024 and start looking further ahead into 2025 and 2026, there’s considerable interest in the long-term positioning and performance of the US dollar. Several macroeconomic factors will shape USD’s direction through this period, including:
– Interest rate policy from the Federal Reserve
– Inflation trajectories in the United States and globally
– Economic growth dynamics and divergence between developed economies
– Geopolitical risks and their influence on safe haven flows
– Debt sustainability and government fiscal policy in the US
The Federal Reserve is currently expected to enter a new easing cycle, but the pace and magnitude of rate cuts are uncertain. With inflation remaining persistent and wage growth stable, a soft landing for the US economy remains possible, which could support a degree of dollar strength. However, growing fiscal concerns and the large budget deficits pose longer-term risks to the attractiveness of dollar-denominated assets.
Key Themes That Might Weaken the Dollar By 2026
A number of factors are pressing on the longer-term prospects for the dollar:
– Fiscal expansion and a soaring U.S. budget deficit make Treasuries less appealing in the long term.
– A growing U.S. debt pile may invite downgrades or higher risk premia from global investors.
– If other central banks catch up to the Fed in normalizing monetary policy, the yield differential that typically supports the dollar may narrow.
– De-dollarization, although gradual, is a geopolitical reality. Countries like China and Russia continue to reduce their dependence on the USD in trade and reserve structuring.
Despite these bearish arguments, USD bears should proceed with caution. Replacing the USD’s dominant status in global trade, finance, and as a reserve asset is not a certainty and will be a long-term evolution, not a short-term event.
Rate Expectations: Fed vs Global Central Banks
In the near term, central banks remain a major driver of forex markets. The divergence or convergence in rate expectations will determine how currency pairs evolve.
Expectations as of mid-2024 show:
– The Fed is expected to cut rates, but at a slower pace than originally predicted.
– The European Central Bank (ECB) is also entering a rate cut cycle, though economic conditions suggest more urgency.
– The Bank of Japan (BOJ) has begun its path away from ultra-easy monetary policy, allowing for JPY appreciation in future quarters.
Markets will continue to trade on shifting expectations around interest rates. Notably, if inflation in the U.S. proves stickier than expected, fewer Fed rate cuts could underpin dollar strength.
Currency Outlooks
EUR/USD: Neutral-to-Bullish Outlook into 2025-2026
The euro has struggled since early 2024, with EUR/USD slipping toward 1.06 areas. However, medium to long-term prospects look more balanced or even slightly bullish if the Fed cuts before the ECB finishes its own cycle.
Key Drivers:
– ECB’s slower rate cut cycle may support the euro versus the dollar.
– Economic recovery in Europe may take hold by mid-2025 if inflation softens and consumer demand rebounds.
– Political risks in Europe—such as upcoming elections and potential fiscal disagreements—could be negative for the euro’s perception.
Technical Considerations:
– Resistance around 1.0950–1.1000 remains a major ceiling for the pair.
– If EUR/USD breaks above 1.1000 convincingly, it opens the door for a move toward 1.1250 into 2025
Explore this further here: USD/JPY trading.