Will this be the currency moment of 2026?

2025 demonstrated the difficulty of translating geopolitical and monetary policy into currency markets. Trump's trade agenda proved predictable, but the dollar's reaction was anything but. Therefore, it's premature to project (Eastern) European currencies as winners in 2026.

One of the key lessons of 2025 is that it's sometimes easier to predict what will happen than to estimate how those events will impact currency markets. In my last column of 2024, I wrote about former President William McKinley, whose sky-high tariffs in the late nineteenth century served as a source of inspiration for Donald Trump. The message was that Trump, as "Tariff Man," would create a great deal of uncertainty and could possibly even ignite a trade war. Twelve months later, there's little to criticize about that outlook. The big surprise, however, is that Trump's trade policy has severely hurt the dollar, instead of boosting it as a safe haven.

Federal Reserve hurts the dollar
Many parties seeking some protection ultimately preferred the Swiss franc, Japanese yen, or the euro. It should be noted, however, that the US Federal Reserve's interest rate policy also played a role in last year's dollar decline. While the European Central Bank (ECB) implemented its last interest rate cut in the spring, the US policy rate has been reduced by 0,25 percentage points three more times since the end of August. Moreover, the Federal Reserve is clearly preparing for at least one more interest rate cut in the new year. Lower interest rates make it less attractive for parties to hold assets in dollars.

Close to home
Moreover, Trump is about to appoint a successor to Fed Chairman Jerome Powell. Trump is an outspoken advocate of low interest rates, as they promote economic growth. In light of political interference at the US central bank and falling interest rates, parties have taken a strong position in favor of a lower dollar this time around in the run-up to New Year's Eve. After "Liberation Day"—when Trump announced a series of high rates—was one of the defining moments of this year's currency cycle, it's likely that the most important event of 2026 will take place closer to home. Under intense American pressure, peace or a ceasefire in Ukraine appears to be edging closer.

Huge boost
An end to the fighting would be a huge boost, especially from a humanitarian perspective. In that context, it's obvious to point to the euro and especially Eastern European currencies as winners in such a scenario. The most important (currency) lesson from last year is, of course, that financial markets often choose a different path than everyone expects. Moreover, central banks in Hungary and Poland can easily lower their policy rates, while the ECB, too, is looking down rather than up in this regard. In conversations with clients, I therefore advise them to spend the holidays thinking about how they want to manage currency risks and opportunities in 2026, rather than me pointing to a favorite currency. Happy holidays!

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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