FX Outlook 2027: Seven key risks
The desk anticipates that foreign exchange volatility in 2027 may encourage significant market movements driven by latent tail risks, especially stemming from AI market impacts and geopolitical tensions. Per the full note from ing-think, these dynamics could lead to a weaker USD against lower-yielding currencies like the JPY, CHF, and EUR, particularly amid tech sector unwinds that threaten financial stability. Our internal coverage shows a median target for EUR/USD reaching 1.14, despite a context of uncertainty across the board.
What the desk is arguing
The desk sees low volatility concealing considerable risks that could disrupt FX markets in 2027, particularly those related to AI downturns in the tech sector. According to ing-think, the implications of a tech sector slowdown include initial safe-haven support for the USD, but a subsequent depreciation as risk aversion deepens. This complex interplay suggests that currencies perceived as havens, such as the JPY, CHF, and EUR, could outperform the USD over time.
Key to this outlook is the current economic landscape, characterized by a cautious recovery post-2026 risk events, which includes inflation shocks and broader fiscal concerns. Though the USD remains a favored safe haven, potential anxieties surrounding a significant tech market correction could broadly weaken its stance. The desk anticipates a notable divergence in currency performance as underlying market tensions unfold.
Where it sits in our coverage
For EUR/USD, our consensus target is 1.1400 with a range of 1.1000 to 1.2000 for December 2026. Specific firm targets include nomura at 1.2000, rbc at 1.2000, and hsbc at 1.1000.
This view is aligned with the consensus, as many firms project similar targets, albeit with some notable ranges. The desk's positioning aligns with the upper spread of expectations as we approach the confluence of these significant risks unfolding in 2027.
How other firms see it
The outlook is echoed by firms like rbc and bnpparibas, suggesting a mixed sentiment that supports the EUR against the USD, while firms such as nomura project a stronger outlook for the Euro against other currencies, reflecting a bullish sentiment towards the Eurozone recovery. In contrast, firms like socgen express caution, speculating on more pronounced downside risks, thereby hinting at divergence in currency sentiment.
Key pairs to monitor in connection with this analysis include GBP/USD reflecting the influence of the upcoming BoE rates, and USD/JPY as a critical barometer of safe-haven flows amidst broader risk sentiment shifts.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Low volatility may obscure significant FX market risks in 2027, especially from AI and fiscal concerns.
- 02Potential tech sector unwinds could lead to an initial safe-haven boost for the USD but may ultimately depreciate if financial stability is threatened.
- 03The desk sees JPY, CHF, and EUR benefiting in an adverse risk scenario, supporting a weaker outlook for the USD.
- 04Current consensus suggests a range for EUR/USD of 1.1000 to 1.2000, positioning the desk above the median at 1.1400.
Market implications
Traders should watch the EUR/USD level around 1.1400, which aligns with a stack of firm estimates, amid the existing tail risks discussed. Monitoring the tech sector's performance and its impact on broader risk sentiment will be critical in shaping positions moving forward.
Risks to this view
A scenario where tech losses trigger a wider market selloff could drastically alter the outlook, leading to a temporary dollar rally as investors seek safe havens, followed by a depreciation as liquidity concerns mount and Fed responses are evaluated. Increased geopolitical tensions could also contribute to abrupt shifts in currency values, necessitating close monitoring.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
UOB | Bearish | 1.1140 |
Articles FX Outlook 2027: Seven key risks Published 18:07 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Low volatility masks a wide range of tail risks for 2027. AI stress, another inflation shock, fiscal concerns, elections and geopolitical escalation could all trigger sharp FX moves, while financial repression and a carry unwind add further asymmetric risks Chris Turner and Francesco Pesole AI bust: expect unorthodox FX reactions The resilience of the AI trade in equities has been tested of late, and a more decisive unwind could become an overarching FX driver next year. We think the impact of a major US tech selloff on currencies would depend on how far it spreads to broader US and global risk assets, whether it heavily threatens financial stability, and how it impacts the inflation backdrop.
Crucially, the initial FX reaction may look very different from the medium-term move. The dollar still retains decent safe-haven appeal by our estimates, having recovered from the 2025 “sell America” period. Yet episodes in 2026 where AI concerns hit tech stocks without materially spilling into broader equities were accompanied by some USD underperformance.
We think contained US tech-specific weakness would continue to weigh moderately on the dollar next year, with low-yielding haven currencies such as the yen, Swiss franc and euro benefiting the most. The dynamics would be different if tech losses triggered a broader selloff. In that scenario, we would expect an initial safe-haven boost to the dollar, followed by a larger depreciation as the shock deepens and the Federal Reserve response comes into focus.
The greater the threat to financial stability, the stronger the case for the Fed to provide liquidity and prevent a global financial crisis-style credit crunch, ultimately weighing on the dollar. Over the medium term, we would expect JPY, CHF and EUR to outperform, while the Australian dollar, New Zealand dollar and non-European EM currencies would be hit harder, consistent with recent AI-driven selloffs (see chart below). There is, however, an important inflation caveat.
A severe risk-off shock would itself reduce inflation risks through potential job losses, negative wealth effects and tighter credit conditions. But if inflation remains elevated, the Fed may be slower to ease, not least to preserve the safe-haven role of the Treasury market. In that scenario, we think the dollar would outperform for longer, while European currencies would be less insulated than under a more benign inflation backdrop.
Exposure to an AI bust among selected currencies Asian currencies have been excluded due to time-zone mismatch Source: ING, Refinitiv "> Asian currencies have been excluded due to time-zone mismatch Source: ING, Refinitiv A new 2022 for inflation Our baseline assumes contained second-round effects from the energy shock, allowing major European central banks to cut rates towards the end of 2027. Four risks could challenge that view. Second-round effects may simply take longer to emerge, as a prolonged crisis and higher gas prices erode corporate buffers and feed into food and services inflation.
Sources & References
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