From Dollar Peaks to Policy Pressure: Key Macro Themes for 2026

If you told traders a year ago that the US Dollar would peak just two weeks into the New Year and then slide lower for months, very few would believe it. Coming into 2025, sentiment was heavily skewed toward a EUR/USD move to parity. That view made sense after the aggressive sell-off in Q4 last year.

But major turning points often show up around yearly and quarterly closes. That is exactly what happened. The USD topped and EUR/USD bottomed in mid-January. After consolidating through February, counter-trends took control in March and carried through the end of Q2.

Since then, markets have largely stalled. EUR/USD has been pressing into a major long-term Fibonacci resistance zone, while the Dollar Index has printed two green quarterly candles, even as the Fed moved into rate cuts and President Trump signalled plans to nominate a rate-cut-friendly Fed Chair.

The outlook is not straightforward. A late-2025 government shutdown has clouded key data, especially around jobs and inflation. The main question for 2026 is whether inflation continues to cool or starts rising again. Sustained growth, strong employment, and perfectly controlled inflation rarely coexist. Even if the Fed cuts rates, that does not guarantee lower long-term or mortgage rates. As seen in 2024, bond markets often look past short-term Fed policy and focus on longer-term inflation risks.

This piece looks at several key macro markets and the range of outcomes as we head into the New Year.

The US Dollar

One of the biggest surprises this year was how directly President Trump has pressured Dollar performance. While his first term included public comments on Fed policy, the level of involvement this time has been far more direct.

Trump has openly argued that a strong Dollar hurts exports, tourism, and manufacturing, offering little benefit beyond lower inflation. Combined with his stance that future Fed leadership should favor rate cuts, it is clear that he prefers a weaker Dollar to support US growth.

That approach carries risk. In late 2024, the Dollar rallied even as the Fed cut rates, driven by rising inflation expectations and higher Treasury yields. If inflation picks up again in 2026, the Fed may be forced to pause or reverse cuts. With midterm elections in November, this scenario could have political consequences as well.

For the Dollar, inflation is the key variable. Whether we see a renewed bullish reversal or a deeper move toward the low 90s will likely depend on how inflation trends and how bond markets respond.

EUR/USD

EUR/USD in 2025 was a reminder that consensus views often mark turning points. The parity trade was widely accepted, which made the January low near 1.0200 especially important. That level aligned with a key Fibonacci support.

The reversal was gradual. February was spent consolidating before a strong breakout in March. The rally continued into the first half of the year, eventually stalling near the 78.6% Fibonacci retracement.

Since then, price action has been sideways, with neither bulls nor bears gaining control. Given that the Euro makes up over half of the DXY basket, a sustained trend in one market will likely require participation from the other.

The key question for 2026 is whether the Eurozone economy can support higher exchange rates. A move toward 1.2000 or higher could pressure growth and inflation enough to force the ECB back toward rate cuts.

USD/JPY

The Yen is one of the most important markets to watch in 2026. Tensions are growing between the Bank of Japan and Japan’s new government, especially as yields continue to rise.

The BoJ finally raised rates, and Japanese bond yields spiked sharply, particularly in December. This raises a difficult choice. The central bank can allow yields to rise further, or it can defend the Yen.

We saw the risks of this dilemma in 2024 when USD/JPY pushed above 160. Intervention followed, but not without global consequences. The carry trade began to unwind, US equities topped shortly after, and volatility surged.

If USD/JPY again moves toward extreme levels, the risk is another carry unwind. That would likely create headwinds for global equities, complicating the broader macro picture. A stronger Yen would also contribute to Dollar weakness, but the knock-on effects could be significant.

Gold

Gold remains the clearest macro trade. Its bull market began when the Fed showed tolerance for inflation while signaling rate cuts. Since then, gold has continued higher, forming multiple continuation patterns along the way.

If the Fed continues cutting into 2026, especially under political pressure, the backdrop for gold remains favorable. The main risk would be a sharp inflation surge that forces the Fed to hike. Even then, with Trump able to nominate the next Fed Chair, the tolerance for higher inflation may remain elevated.

Gold stands out as the top trade idea for 2026, driven by policy choices that continue to favor growth, liquidity, and fiscal expansion, even if inflation drifts higher.