Global Forex Monitor - February 2026: Peak Party for Commo Currencies

In January, the DXY dollar index weakened by more than 1.2% due to concerns that there could be a coordinated intervention in the foreign exchange market by the Bank of Japan (BOJ) and the Fed, this after rate checks were conducted with several major banks. Donald Trump initially put a positive spin on the fall in the US dollar, but Treasury Secretary Scott Bessent was quick to affirm his support for a strong dollar to avoid Treasuries being negatively affected. The nomination of Kevin Warsh to become the next Chairman of the Federal Reserve was also a reassuring factor for the US dollar.However, this is unlikely to dispel foreign investor wariness, which has been exacerbated by Trump's unpredictability on economic and trade issues. As a result, asset managers such as Pimco have been reallocating their portfolios away from Treasuries. We remain bearish on the US dollar in the short to medium term on account, as before, of the prospect of further cuts in the federal funds rate, also the US administration's desire to weaken the currency, and the persistence of public deficits that will be more difficult to finance in the future due to a likely reduction in purchases of Treasuries by non-residents.In January, the EUR/USD climbed to a high of 1.2081, buoyed by the weak US dollar, before falling back to 1.18 in early February. At the same time, the euro benefited from stronger domestic fundamentals, including higher-than-expected GDP growth in the fourth quarter of 2025. Against this backdrop, the EUR/USD is likely to trade within a range of 1.18 to 1.22 in the medium term. Any upside potential outside this range appears limited. The ECB's growing vigilance, spurred by concerns about the impact of a strong euro on inflation and growth, is likely to act as a brake and cap the single currency's appreciation.