The Xe Global Currency Outlook - February 2026

As we move further into 2026, global financial markets are navigating a resilient growth backdrop, but with a more complicated set of FX drivers than we saw through much of 2025. January reminded markets that currencies can move quickly when policy messaging, geopolitics, and interest rate expectations align.

According to the IMF’s latest World Economic Outlook update, global GDP growth is forecast at 3.3% in 2026.² This steadier growth environment supports risk-sensitive currencies at the margin, but it also increases the importance of relative performance, meaning FX can be driven by “who looks stronger” rather than a single dominant theme.

Global Themes Shaping Currency Markets In 2026

Several macro forces are defining currency dynamics as the year continues:

• Policy divergence is back: Central banks are no longer moving in sync. Some look set to hold steady, while others are increasingly priced for hikes or further cuts.

• The US dollar is resilient, but more headline-sensitive: Solid US data is still a supportive base, but politics, credibility questions, and geopolitics are becoming a larger part of USD pricing.

• Geopolitics and tariffs are influencing risk appetite: January’s market tone was shaped by Iran-related tensions and tariff rhetoric, which can spill into currency volatility.

• Commodity prices (including oil) are back in focus: A rise in WTI supported CAD in January, and broader commodity strength is supportive for AUD.

U.S. Dollar: Solid Data, Softer Tone

The report’s baseline view is that the US economy remains “solid,” with growth and consumption still holding up. Real GDP rose 4.3% (annualized) in Q3, and retail sales rose 0.6% in November (up 3.3% year over year).¹ The labour market has also cooled without breaking, with the unemployment rate at 4.4% in December.¹ Inflation remained 2.7% in December, with core inflation at 2.6%.

On rates, the Federal Reserve held policy at 3.50%–3.75% on January 28 and described its stance as “neutral,” signaling patience.

So why did USD come under pressure late in January? The report highlights a more headline-led mix: political comments around a weaker USD, pressure for rate cuts that can affect perceptions of Fed independence, and geopolitical tensions (including Iran and the Greenland issue).

What this means for businesses
When FX becomes more headline-driven, the practical risk is getting forced into one execution window. A common approach in this environment is:

• Stage larger conversions rather than relying on a single timestamp

• Align coverage to due dates for firm payables

• Pull approvals forward so execution is a choice, not a deadline

Europe And The UK: Stabilization, With Range Risk

Euro (EUR)

EUR/USD briefly lifted above 1.2000 in January before easing back, and the report flags a potential consolidation phase even as the medium-term outlook stays constructive.

Fundamentally, the Eurozone backdrop improved. Eurozone GDP rose 0.3% quarter over quarter in Q4, keeping the annual pace around 1.3%.¹ Inflation eased to 1.9% in December (from 2.1% in November), and unemployment fell to 6.2%.

On policy, the ECB kept rates unchanged at 2.0% and the report suggests no change is likely near term.¹ It also notes structural support from external balances, including a current account surplus of 2.0% of GDP and a trade surplus above 3.0% of GDP.

Business takeaway for EUR payers
Quiet calendars can still produce big EUR moves if EUR is trading the broader USD narrative. For operational teams:

• Cover known EUR invoices earlier

• Keep forecast amounts flexible

• Avoid last-day processing that can add operational risk to market risk

British Pound (GBP)

Sterling strengthened in January, with the report pointing to improved UK PMIs and stronger retail sales momentum. December retail sales rose 2.5% year over year, the strongest since April. At the same time, inflation lifted to 3.4% in December, while unemployment remained elevated at 5.1%, creating a more complicated policy picture.

The Bank of England meets on February 5, with the policy rate at 3.75% after a December cut. The report notes markets are leaning toward “no change” near term, helped by the recent inflation and PMI backdrop.

Business takeaway for GBP payers
GBP moves often come from guidance shifts and repricing of the expected path, not just the decision. Two simple controls help reduce unpleasant surprises:

• Tighten quote validity windows with GBP-priced suppliers

• Reduce the quote-to-pay gap with earlier approvals and predictable payment runs

Asia-Pacific: AUD And NZD Stand Out

The report highlights AUD strength as one of the clearest January themes. AUD/USD lifted more than 5.0% over January, moving above 0.7000. The drivers were improving domestic activity, stronger inflation, and the growing likelihood of rate hikes.

Australia’s unemployment rate fell to 4.1% in December and inflation rose to 3.8% (with trimmed mean inflation at 3.3%).¹ The RBA held rates at 3.6% in December, but noted inflation risks had tilted higher, and the report cites market pricing that implies a 72% chance of an RBA hike in early February.

New Zealand also remains constructive in the report. It notes improving activity indicators, stronger hiring signals, and inflation that lifted to 3.1% in Q4. The RBNZ cut rates to 2.25% in late November and indicated no further cuts, with market pricing pointing to potential hikes later in 2026.

Business takeaway for APAC payers
AUD and NZD can move quickly around policy windows and data surprises. If you have APAC payables:

• Confirm approval cutoffs across time zones

• Avoid leaving execution to the final day

• Consider staging larger conversions for predictability

Japan And China: Structural Forces Dominate

Japanese Yen (JPY)

USD/JPY volatility “returned with gusto” in January, with the report pointing to concerns over Japanese government debt dynamics, political developments, and the USD’s late-month depreciation. The BoJ held rates at 0.75% and reiterated its intention to continue raising rates over time.

Business takeaway for JPY payers
JPY risk is often about volatility rather than direction. If you pay Japan-based suppliers, reducing last-day execution risk is usually the most practical win.

Chinese Yuan (CNY)

The report notes that CNY strengthened in January despite a weaker domestic economy, supported by export performance and active policy management. It also highlights that China met its 5.0% 2025 growth target by generating export growth outside the US, alongside efforts to encourage the use of CNY in cross-border transactions.

Business takeaway for CNY payers
Operational accuracy matters. In periods of heightened compliance and bank checks, clean beneficiary data and consistent payment references can reduce delays more than trying to time a better level.

Key Risks To Watch In 2026

While the baseline outlook remains constructive, the report highlights several risks that could drive volatility:

• USD weakness linked to geopolitics and policy credibility

• EUR/USD spending more time above 1.2000 as USD softens and ECB holds

• GBP support if UK momentum continues and cuts are delayed

• AUD strength if the RBA delivers a series of increases

• NZD outperformance if recovery momentum persists

• JPY volatility tied to rising yields and debt-servicing concerns

• CAD and MXN volatility as USMCA renegotiations begin in earnest

Bottom Line

February 2026 builds on a clear January message: the era of one-way, USD-dominant trading is fading, and relative growth, inflation, and policy paths are driving currency performance again. For businesses managing cross-border exposure, the advantage comes from staying proactive: cover what you already know you must pay, reduce last-day payment risk, and keep execution predictable.

At Xe, we will continue monitoring these developments closely, helping you navigate currency movements with clarity and confidence throughout 2026.

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The content within this blog post is not intended for use as financial advice. This content is for informational purposes only.