Dollar selling resumes early in 2026

The USD has fallen to multi-year lows against its peers

Of the two themes I had picked out to drive FX markets this year – economic growth performance and continued USD aversion – it is certainly the latter that has driven things so far. Though in recent days the risks to the Federal Reserve’s independence and geopolitical stability feel to have dissipated, the USD had fallen to multi-year lows against many of its peers. Those losses have been partly recouped, but the dollar remains one of the weakest in the G10 so far this year. The fall to its low was triggered by comments from President Trump that the dollar was “doing great”, despite the slide. It’s probably worth noting that a weaker dollar helps toward the administration’s trade balance goal by cheapening US exports. Plus, the so-called “strong dollar policy” likely refers more to the USD’s position as the pricing mechanism for international commodity markets, and the domination of international FX reserves, rather than a strong dollar in terms of price. Focus now turns back to the US labour market, and any comments from Trump’s Federal Reserve Chair nominee Kevin Warsh in the coming weeks.
 

Political nervousness remains for sterling

The dollar weakness allowed GBPUSD to rise to a four-year high of 1.3868 last month.  But while focus was heavily skewed towards the dollar and precious metals in January, the pound saw a brief drop mid-month on political concerns as a seat opening in Manchester opened the door for Andy Burnham to stand for MP. Although the Labour party blocked Burnham’s bid to run for election, political concerns are likely to linger ahead of the May local elections in the UK, as Keir Starmer continues to face pressure from Reform UK in the polls. It is those political concerns that have our economists forecasting a drop in sterling over the first half of the year. Before then, the Bank of England outlook is another source of uncertainty for sterling. CPI inflation remains above target, but is forecast to abate, which could spur further interest rate cuts while other G10 central banks are turning a corner. Notably the Reserve Bank of Australia raised interest rates on Tuesday, initiating a new monetary policy cycle – GBPAUD fell to a one-year low in response.

Notes: uses an equal-weighted index for each currency against the other nine in the G10
Sources: Bloomberg, Macrobond, Investec

The euro waits for evidence of growth

EURUSD also rallied to a four-year high last month on the USD’s weakness, breaching 1.2000 for the first time since 2021. That level had been many forecasters’ target for the year, but few of them expected the pair to get there so quickly. The euro actually underperformed against most of its peers over the month, despite data broadly supporting euro strength. Last week’s Q4 GDP data laid solid foundations for a 2026 that is expected to see a continuation of resilient economic growth, helped by  greater investment in defence, while inflation sits comfortably close to the ECB’s target. The euro’s Scandinavian neighbours rallied once more, adding to their 2025 strength. Most notably, EURSEK fell to a three-year low before bouncing at 10.5000 – the Swedish krona continues to attract attention as defence spending plans take shape.
 

January saw large moves throughout FX markets

In the G10 space, the yen’s weakness was a hot topic once again. So much so that the US Treasury reportedly conducted a ‘rate check,’ and speculation swirled as to whether the Japanese authorities had intervened, which official data later confirmed they hadn’t. Even so, USDJPY fell by more than seven yen in just three sessions, helped by the dollar weakness. Elsewhere the rand’s charge continued, driven largely by surging metal prices. The rise in metal prices has boosted South Africa’s terms of trade; the balance of its export and import prices. USDZAR fell by more than 20% from its April peak, to its lowest since June 2022. The rand has given some gains back though, in line with the recent correction in gold prices after its rapid surge.

Sources: Bloomberg, Macrobond, Investec

Forecasts

Sources: Macrobond, Bloomberg, Investec

Sources: Macrobond, Bloomberg, Investec

Sources: Macrobond, Bloomberg, Investec

Notes: Forecasts are produced by Investec Economics and are for end-quarter
Chart data as of 08:28 GMT, 05 February 2026