The dollar concluded 2025 experiencing its most significant annual decline in eight years, a trend market analysts attribute to expectations surrounding the next Federal Reserve chair and anticipated interest-rate cuts. The Bloomberg Dollar Spot Index decreased approximately 8% over the year, prompting investors to anticipate further depreciation.
The dollar's decline initially accelerated following President Donald Trump's implementation of tariffs in April. The currency struggled to recover, largely due to speculation that Trump would nominate a dovish successor to current Fed Chair Jerome Powell, whose term concludes next year.
Yusuke Miyairi, a foreign-exchange strategist at Nomura, stated that the Federal Reserve would be the primary influence on the dollar's performance in the first quarter of the coming year. Miyairi emphasized the importance of both the January and March meetings, as well as the uncertainty surrounding Powell's replacement.
Market expectations currently include at least two interest rate reductions in the coming year. This projected policy path diverges from several other developed economies, reducing the dollar's attractiveness to investors. Data released Wednesday by the Commodity Futures Trading Commission indicated that traders increased their bearish positions on the dollar through Dec. 23. Options trading suggested continued dollar weakness in January, with a potential moderation of this trend in subsequent months.
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