The US dollar heads for its worst annual performance in over 20 years, while the euro hits a three-month high.
The US dollar is heading for its worst yearly performance in more than 20 years, with analysts warning that further Federal Reserve rate cuts in 2026 could weigh on the currency.
On Wednesday, the dollar slipped to a 2½-month low of 97.767 against a basket of major currencies and is on track to lose 9.9% for the year, its largest annual drop since 2003.
Investors remain concerned that the Federal Reserve has room to ease monetary policy next year, even as other central banks appear set to raise rates. Strong U.S. GDP data did little to change expectations for roughly two additional Fed cuts in 2026, leaving the dollar on the back foot in Asia trade.
The currency’s struggles come after a volatile year, affected by political uncertainty, trade tariffs, and growing concerns over the Fed’s independence amid political pressures.
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Meanwhile, the euro strengthened to a three-month high of $1.1806, up over 14% for 2025, putting it on track for its best performance since 2003. The European Central Bank’s decision to hold interest rates steady last week, alongside upward revisions to growth and inflation forecasts, helped boost confidence in the euro and signaled limited scope for near-term easing in Europe.
Market watchers say the divergence between the dollar and euro reflects differing central bank trajectories, political risk, and investor sentiment, with the greenback pressured by expectations of monetary easing and the euro supported by stability and robust economic projections.
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