At the start of 2026, currency markets were mapping a fairly conventional world: a US economy slowing enough for the Federal Reserve to cut rates twice, a cautious European Central Bank and most other central banks content to follow Washington’s lead.
The conflict in Iran ended that script almost overnight.
Energy prices surged, inflation expectations shifted, and central banks began talking about rate rises. The Fed, facing a combination of energy-driven inflation and mounting growth uncertainty, has stayed put.
That divergence has opened the door for a broad range of currencies to gain ground against the US dollar. But each winner has its own story.
The 10 best-performing currencies against the dollar in 2026
Brazilian real: The world’s highest carry trade
The Brazilian real’s near 11% gain year-to-date is the strongest performance of any significant currency against the US dollar in 2026. Two forces are at work simultaneously, and both are pointing in the same direction.
The first is carry. Brazil’s Selic benchmark rate sits at 14.75% — even after the central bank cut it by 25 basis points on 18 March, it remains roughly 11 percentage points above the Federal Reserve’s target.
That gap is near its widest level since the 2022 global tightening cycle, and it creates a powerful mechanical incentive: an investor borrowing in US dollars and parking the proceeds in Brazilian real-denominated assets earns that differential as pure income, every day, as long as the exchange rate holds.
When the real appreciates on top of that — as it has done this year — the returns compound quickly.
This is the carry trade in its most straightforward expression, and Brazil currently offers the highest version of it among any liquid emerging market.
The second force is commodities. Brazil is the world’s largest exporter of soybeans, iron ore, beef and sugar, and a significant crude oil producer.
When global commodity prices rise — as they have in the energy-shock environment of 2026 — Brazil’s terms of trade improve, export revenues rise, and demand for the real strengthens from a completely separate channel.
Carry and commodity windfall are reinforcing each other, which is why the real has outperformed even other high-yielding currencies that lack Brazil’s export mix.
Australian dollar and Norwegian krone: Commodity plus rate premium
The Reserve Bank of Australia raised its cash rate on 17 March to 4.1%, following a hike in February, a decision that pushed the Australian rate differential against the United States into positive territory for the first time since 2017.
After years in which Australian rates sat below their US counterparts, the reversal signals a genuine shift in relative monetary policy, and the Australian dollar’s 7% year-to-date gain reflects exactly that repricing.
Norway’s krone runs almost in lockstep, up nearly 7% on the year. As a significant oil exporter, Norway is one of the few economies whose terms of trade improve with higher crude prices.
The Norges Bank has already leaned hawkish in its communication, and Scandinavian currencies broadly have benefited from the European tightening narrative.
Colombia’s peso fits the same template: oil exports dominate the country’s external revenues, and the currency has tracked energy prices closely throughout 2026.
Hungarian forint: The most dramatic turnaround of the year
The Hungarian forint’s 6.32% year-to-date gain conceals the sharpness of the recent move. In the past two weeks alone, the currency has rallied roughly 8%, putting April 2026 on course to be the forint’s best month since July 2020.
The catalyst was unambiguous. On 12 April, Hungary held parliamentary elections in which Viktor Orbán — in power for sixteen consecutive years — lost decisively to Péter Magyar, who secured a two-thirds majority in parliament.
For currency markets, this was not a routine change of government but a full repricing of Hungarian political risk.
Under Orbán, Hungary had been in prolonged confrontation with the European Union over rule-of-law standards, resulting in billions of euros in frozen structural funds.
A pro-EU government with a reform mandate changes the calculus entirely: markets see a credible path to normalising relations with Brussels and unlocking frozen funds, removing the political risk premium that had weighed on Hungarian assets for years.
ING’s EMEA FX and Fixed Income Strategist Frantisek Taborsky, writing on 14 April, noted that the post-election rally had been led particularly by the long end of the curve, with rates outperforming bonds and FX appreciating more slowly than expected — suggesting that heavy positioning had already been built in the market before the vote.
The common thread: The Federal Reserve’s constrained position
Underneath each of these individual stories runs a shared macro driver: the Federal Reserve’s inability to move in the face of war-driven inflation.
While the Fed has signalled it will look through the oil-driven inflation shock, central banks elsewhere have moved in the opposite direction — the Reserve Bank of Australia has already raised rates, and several others are actively debating hikes.
Prediction markets on Polymarket put the probability of a European Central Bank rate hike in 2026 at 76%, a Bank of England hike at 57%, a Bank of Canada hike at 36% and a Federal Reserve hike at just 15% — a snapshot that captures the policy divergence more starkly than any forecasts.
Danske Bank’s Senior Analysts Antti Ilvonen and Rune Thyge Johansen offered a structural reason for the Fed’s constraint in their April Global Inflation Watch.
US headline inflation rose 0.9% month-on-month in March — 3.3% year-on-year — lifted by a 10.9% surge in the energy component. Core inflation, which excludes energy and food, came in at 0.2% month-on-month, below the 0.3% consensus, with the “super core” services measure declining from 0.35% to 0.18%.
Their conclusion: the war’s inflationary impact has so far been almost entirely concentrated in energy, with limited pass-through to core.
That distinction supports their call for the Fed to resume cutting in September.
Goldman Sachs’s rates strategists George Cole and William Marshall have highlighted the scale of the shift on the other side of the equation.
Yields have risen across every G10 market since the war began in late February, and Goldman now expects six G10 central banks to raise rates in 2026 — up from three before the conflict.
“So far, the inflationary aspects of the commodity price shock have dominated growth concerns,” Cole said.
Only the Fed is forecast to cut. As of 15 April, the implied probability of even a single rate reduction this year stands at 38%, according to BBVA.
“We believe that the market pricing is not dovish enough and expect it to move to resuming implying at least one rate cut later this year,” said Dariusz Kowalczyk, Head of Cross-Asset Strategy Asia at BBVA.
What could change the picture?
Unless the market sees global growth prospects deteriorate sharply, the current repricing of central bank paths is likely to remain sticky.
For commodity currencies in particular — the krone, the Australian dollar, the Colombian peso — the other key variable is oil.
BBVA noted that the IEA estimates it would take two weeks after the reopening of the Strait of Hormuz to restore 50% of pre-war Persian Gulf export volumes, and a month to reach 80%.
A faster-than-expected normalisation of energy supply would compress the commodity premium that has driven these currencies higher.
ING’s Francesco Pesole sounded a note of caution on the broader picture. “Markets remain heavily tilted toward a sanguine interpretation of events. That means plenty of good news is already in the price, which does increase the dollar’s rebound potential if tensions flare up again,” he said this week.
The currencies at the top of this year’s leaderboard have climbed on the assumption that the good news keeps coming. If it doesn’t, the unwind could be just as sharp as the rally.