Global Central Banks Brace for Hawkish Turn in 2026

The global interest rate outlook is becoming more volatile, with central banks signaling potential rate hikes in 2026. This shift is driven by persistent inflation amidst solid growth in developed economies, affecting market expectations and causing volatility in currency and bond markets worldwide.

In a rapidly evolving financial landscape, central banks are signaling a potential shift towards interest rate hikes in 2026, as persistent inflation remains a concern. This sentiment was echoed by Reserve Bank of Australia Governor Michele Bullock and European Central Bank Board Member Isabel Schnabel, highlighting a more hawkish monetary policy environment ahead.

The Federal Reserve, Bank of England, and Norges Bank are the only G10 central banks expected to cut rates next year. Meanwhile, the Bank of Canada and RBA are anticipated to raise rates, a stark contrast to the rate-cutting cycle observed recently. This pivot is influenced by robust economic activity and fiscal policies supporting growth.

The implications of these developments are profound, affecting currencies and bonds, with the Japanese yen and emerging market currencies particularly vulnerable. Investors are cautious, yet market volatility remains low, hinting at possible shifts in the coming months. The evolving dynamics underscore the uncertainty in the financial markets as 2026 approaches.