Dollar Stability Masks Underlying Volatility

The U.S. dollar has surprisingly shown stability in 2026, despite expectations of rising interest rates and inflation. In contrast to last year, when it fell approximately 10% against a basket of currencies due to changes in U.S. trade policy, the trading range for the USD against the euro and British pound was only 6.8 cents in the first half of 2026.

This stability is unusual given the higher interest rate environment, which typically supports the dollar. However, the impact on inflation has been sticky, leading to expectations of rising rates in many countries, neutralizing the net effect on the dollar.

The Australian and New Zealand dollars have appreciated against the USD this year due to rate rises, while emerging market currencies have consistently outperformed the dollar. The U.S. dollar's performance against the Japanese yen has been driven by yen-specific factors, including the support effort led by the U.S.