The U.S. dollar is set to close 2025 with its biggest annual drop since 2017, declining 9.5% against a basket of major currencies. Factors driving the downturn include potential Federal Reserve interest rate cuts, fiscal concerns, and ongoing political pressures from the Trump administration. The euro and British pound are poised for their strongest yearly gains in eight years, with the euro rising 13.5% and the pound surging 7.6%.

Goldman Sachs strategists anticipate continued dollar weakness in 2026, driven by solid global growth and expected Fed rate cuts. The Chinese yuan has also broken through the seven-to-dollar psychological barrier, marking a 4% increase for the year. The Japanese yen remains an outlier, remaining broadly flat despite two Bank of Japan rate increases.

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• How much did the U.S. dollar decline in 2025? — The dollar index dropped 9.5% in 2025.
• Which currencies performed best against the dollar? — The euro gained 13.5% and the British pound surged 7.6%.
• What are the key factors behind the dollar’s weakness? — Interest rate cuts, fiscal worries, and political uncertainties under the Trump administration.
• What are currency market expectations for 2026? — Continued dollar weakness, with traders pricing in potential Fed rate cuts and global economic shifts.

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