2025 was a highly active year for currencies, and there are numerous indications that 2026 will continue at least some of the patterns we’ve seen over the last 12 months. While trade was the major theme driving markets this year, the situation has stabilized somewhat, bringing other trends to the fore. These include divergent monetary policies, geopolitical factors, and the overall health of the economy.

One theme that has been getting increasing attention from traders is AI. Over the last year, AI-backed stocks have surged dramatically, dragging up the entire stock market in the process. However, as valuations skyrocket, it increasingly becomes a concern for foreign exchange traders. If the AI bubble were to burst, sending shares lower similar to the dot-com bust, currency markets would go haywire. That might spell the future of the dollar, gold and commodities, including the currencies that depend on them.
 

Has AI Hit A Tipping Point?

Early trading in December exhibited significant volatility as investors responded to earnings reports from major AI-driven tech firms. Technology now accounts for over 37% of the stock market’s valuation, the highest it has ever been. Even more than during the dot-com bubble. Understandably, this has many traders nervous as businesses plow R&D money into the technology far in excess of the revenue they are receiving.

The hope is that future returns will pay for the current investment. So, for AI to avoid a bust, companies that have spent hundreds of billions on the technology so far would have to see improving sales and profits. That necessitates a growing economy. While tech leaders are concentrated in the US, making American economic growth more directly relevant, the global implications of the technology mean that the world’s economy would need to grow in order to maintain the gains seen in the tech sector.
 

Will the Economy Grow?

Economists are forecasting uneven growth for 2026. The expectation is that the US economy will continue to cool, but increased spending in the EU will help accelerate the growth of the shared economy. One of the factors driving the EURUSD over the last year has been investors buying up perceived undervalued European stocks, compared to the high valuations of US equities. If this trend continues, driven by a rebound in the Euro Area economy, the Euro could continue to appreciate.

However, one potential problem is Ukraine. Growth in EU stocks has relied on increased defense spending. If a deal is reached to end the war in Ukraine, confidence in European defense spending might reduce, and with it, the gains of the Euro could reverse. A peace deal would also drag on the price of crude, which has fallen in anticipation over the last few weeks.
 

Will Gold Keep Shining?

One of the standout trends in 2025 has been the meteoric rise in gold, accompanied by other precious metals. A wide range of factors has led to investors piling into the safety of gold, and interestingly, many of those factors are expected to continue next year. The Fed is projected to keep easing, geopolitical tensions remain high, and there is an increasing loss of confidence in the dollar as a reserve currency and safe haven asset.

On the flip side, however, it could be that overenthusiasm at the end of the year has left gold’s gains overstretched once more. With more sober traders returning on January 5th, gold could begin the year in a correction. Either way, gold and other precious metals are likely to be a major focus in 2026

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