Analysts expect a continued dollar-centric market where most G10 currencies move in tandem against the dollar, keeping dollar correlations high. However, they are bearish on cross-correlations (e.g., involving Sterling and Euro), anticipating greater divergence between non-dollar currencies, which presents an opportunity for investors.

With both US and European economies growing robustly, the direct EUR/USD currency pair is largely neutralized. A more effective strategy to gain exposure to Europe's strengthening growth is by investing in higher-beta, pro-cyclical currencies like the Scandinavian Kroner, which are less impacted by broad US dollar movements.

Contrary to the belief that US strength harms the Euro, historical data shows the EUR/USD pair performs best when growth outlooks for *both* regions are being upgraded. This is because the Euro is fundamentally a pro-cyclical 'growth currency,' benefiting from a global risk-on environment even when the US also thrives.

Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

A recent global fixed income sell-off was not triggered by a single U.S. event but by a cascade of disparate actions from central banks and data releases in smaller economies like Australia, New Zealand, and Japan. This decentralized shift is an unusual dynamic for markets, leading to dollar weakness.

A historical review places 2026 in the second-lowest decile for central bank rate activity (hikes/cuts). This data strongly suggests a contained FX volatility environment, as significant vol spikes historically occur only during periods of extremely high or low central bank intervention.

J.P. Morgan's 2026 outlook is "Bearish Dollar, Bullish Beta," favoring pro-cyclical and high-yield currencies. They expect the dollar's decline to be smaller and narrower than in 2025 unless US economic data significantly weakens, shifting from the more aggressive bearishness of the previous year.

J.P. Morgan expects gold to continue rallying while traditional haven currencies like the Yen and Swiss Franc weaken. The firm notes that option markets are not priced for this divergence, creating a value opportunity for traders to position for gold's relative strength against these specific fiat currencies.

Despite high Euro risk reversals against the dollar, J.P. Morgan identifies a broad underperformance in Euro skew, particularly in LATAM crosses like EUR/BRL and EUR/MXN. This dislocation creates an attractive setup for volatility harvesting strategies, such as selling topside Euro calls through delta-hedged structures.