Forex analytics. The dollar is losing its leader – ForexNews.PRO
The squad did not notice the loss of a fighter. It’s good if it’s not the leader of the pack. Usually, central banks move in the same direction, led by the Fed. However, in 2026, their paths risk diverging. The Fed is expected to aggressively ease monetary policy. On the contrary, his colleagues are demanding that rates be withheld or even increased. As a result, the US dollar finds itself in an extremely unfavorable situation. Will the EURUSD bears be able to find the strength to resist?
Hawkish reversals are in fashion on Forex. South Korea and New Zealand were the last to signal the end of monetary expansion cycles. Canada was one of the first to send such signals. The acceleration of inflation in Australia allows UBS and Barrenjoey Markets Pty to talk about raising the Reserve Bank’s cash rate.
The minutes of the October ECB meeting showed the unwillingness of the Governing Council to change rates. According to officials, their current level allows for more information to assess risk factors. It can be considered reliable enough to manage shocks. The reason for the change in the cost of borrowing can be either a sharp rise or a sharp drop in inflation. At the moment, neither one nor the other is expected.
As a result, the ground has been laid for a classic divergence in monetary policy. The futures market expects a reduction in the federal funds rate by approximately 90 bps in 2026. During the same period, Japan may raise the overnight rate by 75 bps, and the Reserve Bank of New Zealand cash rate by 40 bps.
The Bank of England stands apart. Derivatives predict a reduction in the REPO rate from 4% to 3.75% in December with a 90% probability and estimate the scale of monetary expansion in 2026 at 64 bps. This indicator decreased after Rachel Reeves presented the draft budget. The Chancellor claims that it is aimed at suppressing the highest inflation in the G7, but in fact it can disperse it.
Of course, the rates in the United States are higher than in other countries. This increases the attractiveness of American assets and, on paper, promotes capital inflows to the United States. However, this requires long pauses in the cycles of central banks. With Kevin Hassett at the head of the Fed, we should hardly count on this.
Thus, the recovery of the uptrend in EURUSD in 2026 is not a story of a strong euro, but of a weak US dollar. Lowering the federal funds rate is a direct path to a decline in the USD index. It will be possible to turn away from it only in case of pleasant surprises from the American economy.
