## USD Withdrawals: The Middle Range Holds, but 2026 Brings Fiscal Pressures

The USD is losing ground after yesterday's gains and is sliding toward the center of the trading band that has characterized the market since June 2025. BBH analysts do not anticipate significant movements in today’s session, given the lack of relevant economic data to guide monetary policy. Markets are expected to remain in a calm territory.

## Signals from Fed Governors: The Rate is "Almost Neutral"

Among today's speakers are Tom Barkin, President of the Richmond Fed (non-voting), and Stephen Miran, a central bank governor. Yesterday, Neel Kashkari of the Minneapolis Fed (voting in 2026) stated that monetary policy is "close enough to neutrality," but issued a warning: there is a real risk that the unemployment rate could rise. Anna Paulson, head of the Philadelphia Fed (voting in 2026), concluded that "modest further adjustments to the federal funds rate would probably be appropriate over the course of the year."

## The Market Already Prices in 50 bps Cuts in Fed Funds Futures for 2026

Most FOMC members will have little difficulty justifying the 50 basis points reductions already priced into Fed funds futures contracts for the next year. The minutes from the December 9-10 FOMC meeting highlight that "most participants believed that further downward adjustments to the target range for federal funds would likely be appropriate if inflation continued to decline as expected."

## 2026 Will Be the Year of Fiscal Stress: USD Turning Defensive

According to BBH analysis, 2026 is expected to be a year of increasing fiscal pressures. The currency market will progressively focus on budget credibility along with interest rate differentials. This dynamic should keep the USD in a defensive position. Analysts will delve deeper into this theme in the quarterly report and the webinar scheduled later this month.