2026 Forex Outlook: Will the AI Boom Boost the USD? A Complete Guide to H2 Market Trends and Two-Way CFD Trading

Looking ahead to the foreign exchange market in the H2 of 2026, we have synthesized recent institutional reports and macroeconomic data to outline the core market perspectives for investors. Overall, the mid-2026 Forex market will revolve around three main themes: "a strong USD intertwined with potential risks," "continuous downward pressure on the JPY," and "weak momentum in European currencies."

US Dollar (USD): Supported by Multiple Tailwinds, But Beware of Long-Term Confidence Risks

According to Bank of America (BofA), the US dollar still has further room for upside in the second half of 2026, primarily supported by three key factors:

● Geopolitics and Oil Prices: Tensions in the Middle East (such as potential conflicts involving Iran and the Strait of Hormuz) have driven up safe-haven demand and kept oil prices elevated. Since crude oil is priced in dollars, this creates substantial foreign exchange demand and provides strong downside support for the USD.

● The AI Investment Boom: The global race to develop AI has provided massive momentum for US equities. The staggering outlook for US capital expenditures continues to attract massive inflows of foreign capital, further boosting the demand for the dollar.

● High Interest Rate Expectations: BofA predicts that the Federal Reserve (Fed) may execute rate hikes that exceed current market expectations in 2026 (estimated at 3 hikes). A prolonged high-interest-rate environment will continue to widen the dollar's yield advantage.

However, investors must also remain vigilant about potential tail risks. Renowned economic historian Barry Eichengreen warns that if US fiscal deficits and policy uncertainties persist, the probability of a sudden crisis of confidence in the dollar could exceed 50%. In today's multipolar global economy, a coordinated currency intervention like the 1985 "Plaza Accord" is virtually impossible to repeat, meaning market volatility could become significantly more severe.

Japanese Yen (JPY): Carry Trades Persist, Risk of Plunging to 170

The Japanese Yen is expected to face heavy selling pressure in Q2 2026. Renowned Forex strategist Vikram Murarka predicts that the USD/JPY could depreciate to 170 over the next year.

● Technical Factors and Yield Spreads: The Nikkei/Dow ratio and the short-term US-Japan yield spread continue to act as leading indicators of pressure on the Yen. The "carry trade"—borrowing low-interest Yen to invest in higher-yielding overseas assets—remains highly prevalent.

● Monetary Policy Divergence: Although Japanese authorities retain the right to intervene in the Forex market, and there are voices within the Bank of Japan (BOJ) calling for rate hikes to combat inflation, the market widely believes that the BOJ's tightening pace will lag far behind other major global central banks. Until there is a fundamental shift away from its accommodative environment, verbal or physical interventions alone will struggle to reverse the Yen's structural weakness.

Euro (EUR) and British Pound (GBP): Weak Economic Data Leading to Downward Pressure

European currencies are expected to underperform in the second quarter:

● Euro (EUR): The Eurozone is grappling with widening trade deficits and hidden risks of deteriorating public finances in certain countries (like France). Although inflation remains above target, sluggish economic growth has led the market to expect the European Central Bank (ECB) to hold rates steady, putting downward pressure on the EUR/USD.

● British Pound (GBP): The UK economy is facing multiple challenges, including sluggish growth, a weak labor market, and a significant public finance gap. Bank of England (BOE) officials have indicated that it is difficult to tackle inflation caused by external geopolitics solely through rate hikes. This limited policy space has caused the Pound to retreat from its highs.

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