Trading forex in 2026: G7 outlook and bank forecasts

Markets strategist Quoc Dat Tong examines how this week's conflicting NFP beat and soft CPI reshaped the US dollar outlook, and where the EURUSD, GBPUSD, USDJPY, USDCAD, and USDCHF pairs could finish in 2026, with updated forecasts from Goldman Sachs, MUFG, JPMorgan, and ING.

If you follow or trade the forex market, this was the week meant to settle the US dollar debate, but instead, it split the jury. 

On Wednesday, 11 February 2026, January Nonfarm Payrolls came in at 130k, nearly double the 70k consensus. Unemployment fell to 4.3%, and markets repriced the next Fed cut from June to July. Then on Friday, 13 February 2026, CPI flipped the script: headline inflation cooled to 2.4% YoY, the lowest since May 2025, while core dropped to 2.5%, the slowest it's been since the post-pandemic inflation surge began. In turn, this change sent the odds of the Federal Reserve cutting rates for June surging back to around 80% based on futures pricing. Goldman Sachs Asset Management called it a "groundhog" moment with fears of a hot January print now behind us. The outcome? The US dollar weakened, treasury yields fell, and the structural case for a weaker greenback in 2026 reasserted itself.

Trade the world's top currencies with Exness

Get tight and stable spreads on every currency trade.

Try free demo

Forex market outlook 2026: Fed policy and economic signals

The latest data delivered a major test for the US dollar’s 2026 outlook, and the verdict leans dovish.

The NFP headline: Around 130k jobs in January, led by health care (+82k), construction (+33k), and social assistance (+42k). Unemployment fell to 4.3% while Annual wages held at 3.7%. The federal government shed 34k positions as deferred resignations took effect. The initial US dollar rally was sharp but faded within hours.

The benchmark revision: The BLS revised total 2025 employment down by 898k, cutting monthly averages from 49k to just 15k. The labor market was far weaker throughout 2025 than real-time data suggested. This supports MUFG’s argument that headline payroll gains overstated underlying job growth, based on private estimates of systematic over‑reporting.

The CPI: Headline CPI rose 0.2% MoM (below the 0.3% expected) and 2.4% YoY, the lowest since May 2025. Core CPI eased to 2.5% YoY from 2.6%, the slowest since the inflation surge began. Shelter, the stickiest component, rose just 0.2% while energy fell 1.5%. Core goods prices were unchanged, suggesting tariff-driven inflation is essentially behind us.

The Fed reaction function: Markets immediately repriced, and the probability of a June rate cut surged to around 80%, reversing the post-NFP shift toward July. Goldman Sachs Asset Management confirmed two cuts in 2026, in June and September, bringing the rate to 3.00–3.25%. MUFG's February outlook still expects three cuts, with the first in April (though the strong NFP makes April timing less certain). JPMorgan remains the outlier, expecting at most one cut this year.

Three structural headwinds are likely to keep medium‑term pressure on the US dollar, even when individual data prints are strong. First, Trump publicly called the US dollar's weakness "great" in January.  Second, the Fed “checked rates” in USDJPY on 23 January, a signal that Washington wants a softer greenback. Third, capital rotation from US assets has accelerated: euro-based investors lost 8% on US equities after FX adjustments in 2025, and Chinese regulators have encouraged banks to reduce US Treasury exposure.

EURUSD forecast 2026: Euro strength vs US dollar

EURUSD briefly broke above 1.20 in Jan for the first time since June 2021 before settling near 1.18. The soft CPI provided fresh support for the pair. If inflation is cooling and the Fed cuts rates in June, the policy gap with the ECB (on hold at 2.15%) will narrow further.

Key drivers of EURUSD in 2026

Germany's fiscal spending programme has grown to 1 trillion EUR, which includes infrastructure and defence. German factory orders surged 5.6% MoM in November, and Eurozone Sentix investor confidence jumped to 4.2 in February, the highest since July 2025. The ECB held rates in February and appears comfortable with euro strength, but ING notes the ECB won't react until closer to 1.25.

MUFG flags upside risk: a Trump-driven US dollar selloff could push EURUSD toward 1.30, a scenario that looks more plausible after the CPI data confirmed the disinflationary trend.

EURUSD Bank Forecasts for 2026

Sources: gspublishing.com, mufgresearch.com, think.ing.com, jpmorgan.com, investing.com

EURUSD outlook: My 2026 trading view

The CPI strengthened the case for 1.22–1.25. With inflation cooling and the Fed on track for June, the divergence between an easing Fed and a holding ECB has widened the euro's appeal. German fiscal stimulus is the catalyst that didn't exist a year ago, and the risk is on the upside.

GBPUSD forecast 2026: Weak pound, weak dollar

With the pound trading near 1.36 against the euro, sterling remains underperforming. This week's US data didn't change the GBP-specific picture, meaning it remains a US dollar story.

What’s driving GBPUSD in 2026?

MUFG expects BoE cuts in May and August 2026, taking the rate to 3.25%. Goldman Sachs sees three 0.25% cuts in March, June, and September, while UK unemployment exceeds 5%. ING describes the outlook as "a weak US dollar and a weak pound delivering a flat GBPUSD profile."

Political risk is building. ING flags growing pressure on PM Starmer. MUFG projects EURGBP increasing by late 2026 as the BoE's yield edge over the ECB erodes.

GBPUSD price targets for 2026

Sources: fxempire.com, investingcube.com, fxempire.com, fxempire.com, think.ing.com 

My GBPUSD trading outlook for 2026

The 1.36 consensus from Goldman Sachs and JPMorgan looks realistic. Sterling needs the US dollar to weaken to gain, and this week's CPI supports that. But against the euro, the outlook is negative.

USDJPY forecast 2026: Fed vs BoJ policy battle

USDJPY fell below 154 ahead of NFP, but bounced sharply on the beat, before giving back those gains after CPI release. The pair remains the most contested in G10 FX.

USDJPY drivers: Rates and intervention risk

The NFP initially favoured the US dollar’s bull run. But the CPI's dovish reversal brought the June cut back into play, narrowing the argument for a rate differential. The net effect of the latest data: roughly neutral for USDJPY's medium-term trajectory.

Intervention risk dominates the upside. The Fed "checked rates" in USDJPY on 23 January, while ING saw the yen finding buyers at 158–160. Following Prime Minister Takaichi’s LDP’s decisive win in the 8 February snap election, the yen is likely to react to her reflationary mandate. But the "sell the rumour, buy the fact" reaction saw the yen strengthen after the election.

The BoJ kept rates at 0.75% in January, with ING expecting the next hike in June and a second in 4Q, while MUFG sees a potential April hike. If the BoJ hikes in April or June, while the Fed cuts in June or September, the rate differential narrows meaningfully, supporting MUFG's 146 case.

USDJPY Bank forecasts and targets for 2026

Sources: mufgresearch.com, think.ing.com, fxempire.com, fxempire.com 

My USDJPY trading strategy for 2026

The CPI softened JPM's one-cut case and strengthened MUFG's thesis. If the Fed delivers two cuts (Goldman's base case) and the BoJ hikes once (ING's base case), the 150 area becomes the central tendency. The 18-figure gap between MUFG (146) and JPMorgan (164) remains unprecedented for a G7 pair. The 158–160 zone is the intervention line.

USDCAD forecast 2026: Oil, rates, and trade risks

USDCAD trades near 1.37. The soft CPI is modestly CAD-positive, while earlier Fed cuts weaken the dollar leg of the pair.

Key factors affecting USDCAD in 2026

ING warns that USMCA renegotiations (starting July 2026) could be "rocky," showing a near-term return to 1.40 is possible. Canadian unemployment is at 6.8%, with oil prices near the 56 USD per barrel commodity support limit, while the BoC holds at 2.25%.

Goldman Sachs is cautious about the CAD in the near term but bullish for the year as a whole, expecting global growth to support commodity currencies in 2H.

USDCAD Bank forecasts for 2026 end

Sources: mufgresearch.com, think.ing.com, gspublishing.com 

My USDCAD outlook for traders

USDCAD is a 2H story with the CPI-driven repricing toward a June Fed cut, narrowing the rate gap sooner, which is marginally CAD-supportive. But USMCA renegotiation creates binary risk.

USDCHF forecast 2026: Safe haven and de-dollarisation

The Swiss franc, which benefits from safe-haven demand, de-dollarisation, and geopolitical hedging, is trading near 0.77 against the dollar (USDCHF).

Goldman Sachs forecasts USDCHF drifting to 0.76 and EURCHF rising to 0.95 by year-end. The SNB's options to counter franc strength remain limited as Swiss growth sits below 1% and US tariffs at 39% weigh on exports. The soft CPI reinforces the structural US dollar weakness that supports further CHF gains.

Trading glossary

DXY The DXY, or US Dollar Index, measures the value of the US dollar against a basket of six major currencies, including the euro, yen, and pound. When trading forex in 2026, always remember that movements in DXY help traders gauge overall dollar strength and confirm broader trends across pairs like EURUSD, GBPUSD, and USDJPY.

Rate-checking Rate-checking occurs when a central bank contacts market dealers to inquire about exchange rates, often signaling potential currency intervention. In 2026, traders need to closely monitor rate-checking activity—especially in USDJPY—as it can precede direct action aimed at stabilising or weakening a currency.

Benchmark revision A benchmark revision is the Bureau of Labor Statistics’ annual recalibration of employment data using comprehensive tax records, which can significantly alter previously reported job growth figures. For forex traders in 2026, large revisions can reshape expectations for Federal Reserve policy and trigger sharp repricing in the US dollar.

Core CPI Core CPI is the Consumer Price Index excluding food and energy prices, and it is one of the Federal Reserve’s key measures of underlying inflation. When trading forex in 2026, shifts in Core CPI are critical because they directly influence interest rate expectations and, in turn, currency valuations.

Carry trade A carry trade involves borrowing in a low-yielding currency, such as the Japanese yen, and investing in a higher-yielding currency or asset to capture the interest rate differential. In 2026, carry trades remain central to pairs like USDJPY, where changes in Fed or Bank of Japan policy can quickly unwind positioning.

Final thoughts

The latest labor and inflation data delivered the clearest test of the US dollar outlook, and the structural bear case held. The January NFP headline looked hawkish, the 2025 benchmark revisions looked dovish, and the CPI broke the tie in favour of cuts.

Goldman Sachs expects two cuts (in June and September), MUFG three, and JPMorgan one at most. The data this week supports the middle ground: a Fed cut in June as inflation approaches the target, even as the labor market shows mixed signals.

The direction is set. The pace is the trade, and the latest CPI suggests the pace may be faster than the NFP alone would imply.

Interested in currency trading?

Get market-beating conditions, available only at Exness.

Trade currencies

Frequently asked questions

Will the dollar keep falling in 2026? 

The structural case is intact and strengthened by the CPI. Every major bank except JPMorgan forecasts further weakness. Goldman Sachs expects the US dollar to continue weakening as demand for US assets diminishes.

Which G7 currency has the most upside? 

The euro has the broadest consensus, with targets from 1.20 to 1.25. German fiscal stimulus and ECB rate stability give it the strongest structural support. The yen has a higher theoretical upside but depends on BoJ normalisation.

When will the Fed cut next? 

After the CPI, markets price a June cut at approximately 83% probability, with Goldman Sachs expecting it in June and September. The Mar meeting is a near-certain hold (92% probability), and MUFG still sees a possible April move.

How does the soft CPI change the USDJPY outlook? 

The CPI change narrows the rate differential that has kept the yen under pressure. If the Fed cuts rates in June and the BoJ hikes by mid-year, the 150 area becomes the central tendency for USDJPY, closer to MUFG's 146 target than JPMorgan's 164.

Is inflation really under control? 

Core CPI at 2.5% is the lowest since the inflation surge began. But the Fed watches PCE, which runs higher than CPI. Shelter costs are decelerating, and tariff-driven inflation is fading. This trend is encouraging, but not yet at the target.