Bannockburn Update: January 2026
Bannockburn Update: January 2026
January 2026
The coming year begins under the long shadow of geopolitical tensions and the unfolding of a new transformative technology, artificial intelligence—a technology that in 2025 proved both a backbone and a fault line for the U.S. economy. The resurrection of the US Monroe Doctrine, Russia’s hybrid war in Europe and its aggressive campaign in Ukraine, and China’s intimidation offensive against Taiwan, the Philippines, and Japan, marks a new phase in what we have suggested is a transition from globalization per se to spheres of influence. Further content includes currency specific analysis as well as:
AI: Promises and Risks
US Supreme Court Check?
Beijing Disruption
Politics
Source: Bannockburn Capital Markets, Bloomberg
Bannockburn’s World Currency Index, a GDP-weighted basket of the currencies of the dozen largest economies rose by about 0.50% in December, its best monthly performance since August. It brought the gain for the year to around 3.7%, the largest annual gain since 2017.
Among the G10 components, the Japanese yen was by far the weakest component. It fell by about 0.35% to narrow the year’s gain to around 0.10%, despite the Bank of Japan’s rate hike and signal of more to come. The Canadian and Australian dollars were among the best performers, appreciating by around 1.85% against the greenback. Sterling rose by about 1.8% and the euro finished with about a 1.3% gain in December.
Half of the emerging market currencies in Bannockburn’s World Currency Index rose in December. Encouraged by portfolio capital inflows, the South Korean won led the emerging market components and appreciated by a little less than 2%. The Mexican peso rose by about 1.6%, which brought the year’s gain to 15.6%, fueled by carry trades and President Sheinbaum’s ability to navigate and come out ahead (larger trade surplus with the US) the mercurial American president.
The Chinese yuan rose to its best level since May 2023 at the end of 2025, having been given the greenlight by the PBOC’s lowering of the dollar’s reference rate on a trend basis. With a 1.2% gain in December, the yuan appreciated by nearly 4.5% for the year. The dollar finished the year below CNY6.99. The Russian ruble (-2.0%) and the Brazilian real (-2.5%) were the poorest performers in the BWCI and among emerging market currencies more broadly. And despite supportive intervention, the Indian rupee slipped by 0.50%.
Bannockburn’s World Currency Index 2025 peak was in July, and it trended lower through most of November. It pulled back by about 1.75% before recovering in December. At the end of the year, it approached the downtrend drawn off the July and November highs. It may consolidate in early 2026, but we anticipate a 3-4% gain over the course of 2026, consistent with our expectation of a softer US dollar.
Bannockburn Global Forex is a capital markets trading firm specializing in foreign currency advisory, hedge analytics, and transaction processing for closely held enterprises. We create distinctive value by combining the personal attention and flexibility of a boutique, with scalable efficiencies and expert counsel.
20260105
