Fed pause until mid-2026? USD under structural pressure
Futures markets are increasingly pricing a pause in Federal Reserve rate cuts through mid-2026, with only gradual easing expected thereafter. S&P Global maintains that structural fundamentals — narrowing yield differentials and persistent external imbalances — continue to point toward further US dollar depreciation, potentially lasting through 2028.
Key takeaways:
- Futures markets price a Fed pause until approximately mid-2026, then gradual cuts.
- S&P Global raised its 2026 global GDP growth forecast to 2.9%.
- S&P Global’s model-based projections show continued (though smaller) annual USD declines through 2028.
- OANDA highlights a shrinking US Treasury yield premium as the primary driver pushing capital away from the dollar.
- A weaker USD historically supports commodities, gold, and emerging market currencies.
Why is the Fed unlikely to cut rates before mid-2026?
Fed meeting minutes revealed a notable divide within the FOMC — some officials signaled readiness for further easing while others cited still-elevated core inflation as a reason to hold. A softer-than-expected January 2026 CPI print boosted odds of a June cut, but markets are not fully pricing it as a certainty.
A resilient US labor market gives the Fed room to stay patient without risking recession, reinforcing the case for a prolonged pause.
How will a weaker dollar affect currency pairs in 2026?
S&P Global describes USD depreciation as “model-consistent” — driven by fundamentals rather than speculation. As yield differentials between the US, the eurozone, and Japan continue to narrow, the “carry advantage” of holding dollars fades, opening the door for EUR/USD upside and potential continuation of a USD/JPY reversal.
OANDA adds that improving global growth prospects amplify this dynamic: when the global economy accelerates, capital tends to rotate toward higher-risk, higher-growth assets, which structurally weighs on the USD as a traditional safe-haven currency.
EUR/USD, USD/JPY and gold: the practical trading implications
- EUR/USD: A Fed pause combined with less aggressive ECB cuts reduces the asymmetry that fueled USD strength — the market may start rebuilding long EUR positions.
- USD/JPY: If the Bank of Japan maintains its hawkish stance (further rate hikes possible), while the Fed holds, the yield differential narrows — structurally supporting JPY.
- Gold (XAU/USD): A weaker USD historically correlates with gold gains — this dynamic should remain active as long as the dollar continues losing its yield premium.
The key signals to watch in the weeks ahead remain FOMC rhetoric and PCE inflation prints — these will determine whether the “pause until mid-2026” narrative holds in futures pricing.
