USDJPY
EURUSD
USDJPY
Fed seen on hold in January, then cutting twice this year. USD to dip before H2 rebound.
Table of Contents
Key Takeaways (30s Read)
Wells Fargo anticipates a temporary dip in the USD in early 2026 before a second-half rebound.
Fed Policy and USD Outlook for 2026
Wells Fargo forecasts the Federal Reserve to hold rates at its January meeting, with subsequent rate cuts in March and June. This would bring the federal funds rate to a range of 3.00% to 3.25%. They characterize labor market conditions as "modestly on the wrong side of full employment" with encouraging inflation trends allowing for further easing.Initial USD Weakness Expected
The bank anticipates early 2026 to see USD weakness aligned with Federal Reserve’s easing policies but expects this phase to be temporary, predicting a rebound in the second half of 2026. Emerging market currencies are expected to underperform amid renewed dollar strength.Limited Easing Across G10
Outside the US, easing is expected to be minimal among G10 central banks, with cuts anticipated only from the Fed, the Bank of England, and Norges Bank, while others remain on hold.Conclusion
The overall outlook suggests a front-loaded easing cycle in the US, a temporary dip in the dollar, and tighter global financial conditions as 2026 progresses. Investors should remain vigilant in monitoring the currency movements and associated risks.AI Analyst
AI Opinion
"The outlook for high inflation and interest rate suppression across the broader market holds significant implications, particularly in 2026. While the Fed's rate cuts may lead to temporary USD weakness, the anticipated recovery in the latter half indicates the need for caution. Investors would be wise to consider the risks tied to emerging market currencies amidst this backdrop. Additionally, the limited scope for significant easing among G10 economies suggests that currency movements beyond the US will also be influenced. Traders should develop robust strategies that allow for agility in reacting to USD dynamics."
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