# EU and US rates in 2026: implications for corporate treasury.

Source: https://firmaadvisory.com/insights/rates-eu-us-2026
Last updated: 2026-10-01

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By [Federico Lleonart](https://firmaadvisory.com/federico-lleonart) · Published May 15, 2026 · Updated October 1, 2026 · 6 min read

What does the gap between Fed and ECB policy mean for corporate treasury in 2026? Funding cost, FX hedging and liquidity deployment now differ by currency, so policies built for a zero-rate world give wrong answers. Treasury should review funding location, hedge carry and currency yield benchmarks, then make sure execution can follow.

Central bank paths diverged through 2024 and 2025. The European Central Bank began cutting rates in June 2024 ([ECB key interest rates](https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html)). The Federal Reserve followed in September 2024 ([Federal Reserve rates](https://www.federalreserve.gov/monetarypolicy/openmarket.htm)).

By June 2025, the ECB had cut its deposit rate from 4.00% to 2.00%, while the Fed paused after cutting by one percentage point. Both then raised rates in 2026. As of October 1, 2026, the ECB deposit rate is 2.50% and the Fed target range is 3.75% to 4.00% ([ECB](https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html), [Federal Reserve](https://www.federalreserve.gov/monetarypolicy/openmarket.htm)).

The gap between corporate treasury policies that have adapted and those that have not is just as material.

This is not a macro commentary. It is a working note on what the rate environment means for corporate treasury: funding, FX, liquidity and counterparty selection.

## Why is funding cost no longer uniform across currencies?

The most direct implication is on funding. Companies operating in both jurisdictions face different costs of capital depending on where the funding is raised.

The temptation is to optimize for the cheapest currency. The risk is that the optimization is FX-driven rather than structural.

Borrowing in the lower-rate currency only stays cheap if the currency moves as expected. When it does not, the saving on interest can disappear in the FX result.

The relevant questions for treasury are:

-   Where are the cash-generative entities? Funding raised against the cash flows that service it carries different risk than funding raised against an FX swap.
-   What is the natural currency exposure of the business? Funding that aligns with that exposure is a hedge. Funding that does not is a position.
-   Where are credit relationships strongest? Pricing is not only a function of rates. It also depends on the relationship, the counterparts and the structure.

## How should FX hedging change when rates diverge?

Carry has returned to FX. For companies hedging multi-currency exposure, the cost or yield of the hedge is now a material part of total cost. It is large enough to change the answer to the basic hedging question.

> An FX hedging policy designed for a zero-rate world will produce the wrong answer in a divergent-rate world.

Hedging policies need to address four points explicitly:

-   The cost of carry on each currency pair.
-   The horizon of the exposure.
-   Whether the hedge is economic or accounting-driven.
-   The threshold beyond which the company accepts open exposure to save cost.

Most policies we review have not been updated to reflect this.

### Worked example: the same rate gap, two outcomes

The table uses illustrative numbers: a spot rate of 1.10 USD per EUR and a 2 percentage point gap between USD and EUR rates. They are chosen to show the arithmetic and are not a forecast or a current market rate.

| Company | Exposure | Hedge | Illustrative effect of carry versus spot |
| --- | --- | --- | --- |
| US parent | EUR 50 million receivable in 12 months | Sell EUR forward | Gain of about USD 1.1 million |
| European parent | USD 55 million receivable in 12 months | Sell USD forward | Cost of about EUR 1.0 million |

The same rate gap helps one company and costs the other. A policy that ignores carry treats both hedges as free.

The worked example ignores bank margin and the rounding of forward points. Real quotes will differ, which is why each policy needs its own numbers.

Forward pricing also carries a bank margin on top of the market points. An [FX cost review](https://firmaadvisory.com/fx-cost-optimization) measures that margin separately from the carry.

## How should liquidity be deployed across two currencies?

Where rates differ, the natural deployment of liquidity differs. Holding excess USD liquidity in a non-yielding account while running an overdraft in EUR is a structural inefficiency.

In groups with entities on both sides, the first step is usually internal. Surplus cash in one currency can fund a deficit in the other through intercompany loans or FX swaps, before any external borrowing.

The rate environment makes that inefficiency increasingly costly. Group treasury policy should reflect:

-   A defined yield benchmark for each material currency.
-   A clear framework for sweeping between currencies, where the [account and pooling structure](https://firmaadvisory.com/cash-management-advisory) permits.
-   Counterparty diversification, especially where deposit yields differ materially across banks.

## What the bank sees

From the bank side, a rate divergence changes which products a bank wants to sell. Deposits in the higher-rate currency become more valuable to the bank, and FX forwards carry larger points.

Banks see which clients check forward pricing and which accept the first quote. The margin on a forward sits inside the points, so a client without an independent mid-market check rarely knows what it paid.

Banks also see clients borrowing in one currency while holding surplus cash in another. That pattern earns the bank on both sides, and few relationship managers point it out.

A treasurer who arrives with a yield benchmark for each currency and a hedging policy that prices carry is negotiating from a different position.

None of this requires a forecast. It requires knowing what each bank earns on each product in each currency.

## Which treasury policies should be reviewed first?

A short checklist helps decide where to start. Each item is a policy question rather than a market call.

-   Does the funding policy say where debt is raised, and against which cash flows?
-   Does the hedging policy state the carry on each currency pair it hedges?
-   Is there a threshold for leaving exposure open to save cost, and who approves it?
-   Does each material currency have a yield benchmark for surplus cash?
-   Can surplus cash in one currency fund a deficit in another without an external loan?
-   Are forward quotes checked against an independent mid-market rate?

## What should treasury plan for over the next twelve months?

We are not in the business of forecasting rates. But for treasury planning, three points are worth holding:

1.  The policy gap between the Fed and the ECB will likely remain material for the foreseeable horizon. Treasury policy should not assume convergence.
2.  Rate paths have turned more than once since 2024, including increases by both central banks in 2026. Hedging policy should hold up across a range of outcomes, not be optimized to a central path.
3.  The cost of treasury inaction is higher now than it was in the zero-rate years. The hurdle for revisiting policy is lower than the hurdle for leaving it as it is.

## What does this mean for the treasury operating model?

Most of what we have described is policy. But policy is only useful if it can be executed.

The treasury operating model, meaning bank connectivity, FX execution, intercompany flows and reporting, has to act on the policy in close to real time.

In practice, that means a daily cash position by currency, an FX execution route agreed in advance and intercompany terms ready to use.

The companies best positioned for the current environment have closed the gap between treasury policy and treasury execution. The most exposed have updated one without the other.

The rate environment will continue to shift. The question is whether the treasury operating framework is built to respond, or built to wait.

For groups adjusting funding, pooling or FX across the euro and dollar areas, see our [cross-border treasury consulting](https://firmaadvisory.com/cross-border-financial-structuring).

[](https://firmaadvisory.com/federico-lleonart)

[Federico Lleonart](https://firmaadvisory.com/federico-lleonart)

Federico Lleonart is the founder of FIRMA Advisory and its Head of Treasury Advisory. Formerly in cash management at J.P. Morgan and Barclays, he advises CFOs and private equity firms on treasury, banking and FX. [Read his full profile.](https://firmaadvisory.com/federico-lleonart)

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This insight reflects general analysis and observations from FIRMA Advisory's work in treasury, banking, and cross-border financial advisory. It does not constitute investment advice, financial advice, or a recommendation in respect of any specific security, transaction, or financial decision. For analysis specific to your organization, contact us at [contact@firmaadvisory.com](mailto:contact@firmaadvisory.com).

## Continue reading

### [Cash Management in 2026](https://firmaadvisory.com/insights/cash-management-2026)

From visibility to deployment.

### [EU and US rates in 2026](https://firmaadvisory.com/insights/rates-eu-us-2026)

Implications for corporate treasury.

### [Banking relationships](https://firmaadvisory.com/insights/banking-relationships-2026)

The most under-managed financial asset.

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