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The US Dollar (USD) enters the new year at a crossroads. After several years of sustained strength driven by US growth outperformance, aggressive Federal Reserve (Fed) tightening, and recurrent episodes of global risk aversion, the conditions that underpinned broad-based USD appreciation are beginning to erode, but not collapse.  FXStreet predicts the coming year is better characterised as a transition phase rather than a clean regime shift. A Transitional Year for USD The 2026 base case is for a moderate softening of the Greenback, led by high-beta and undervalued currencies, as interest-rate differentials narrow and global growth becomes less asymmetric. The Fed is expected to move cautiously towards policy easing, but the bar for aggressive rate cuts remains high. Sticky services inflation, a resilient labour market, and expansionary fiscal policy argue against a rapid normalisation of US monetary settings. US Dollar Index Over the Past Decade. Source: Macro Trends In the FX galaxy, this implies selective opportunities rather than a wholesale US Dollar bear market.  Near-term risks include renewed US fiscal brinkmanship, with shutdown risk more likely to generate episodic volatility and defensive USD demand than a lasting shift in the Dollar’s trend.  Looking further ahead, the approaching end of Fed Chair Jerome Powell’s term in May introduces an additional source of uncertainty, with markets beginning to assess whether a future Fed leadership transition could eventually tilt policy in a more dovish direction.  Sponsored Sponsored Overall, the year ahead is less about calling the end of Dollar dominance and more about navigating a world in which the USD is less irresistible but still indispensable.  US Dollar in 2025: From Exceptionalism to Exhaustion? The past year was not defined by a single shock but by a steady sequence of moments that kept testing, and ultimately reaffirming, the US Dollar’s resilience.  It began…

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Filed under: News - @ December 20, 2025 3:24 am