Dollar hits decade low
Table of Contents
The US dollar is experiencing its steepest annual decline since 2017. Wall Street bankers predict the US currency will remain weak next year as the Federal Reserve continues to cut interest rates.
The Financial Times says the dollar has fallen 9.5% against a basket of major currencies this year. This comes after US President Donald Trump’s trade war has raised concerns about the outlook for the world’s largest economy and called into question the dollar’s traditional status as a safe haven for active investors.
The most notable increase against the weakened dollar among the major currencies was the euro, which rose by almost 14% to exceed $1.17. This level was last observed in 2021.
“This is one of the worst years for the dollar in the history of floating exchange rates,” said George Saravelos, currency market analyst at Deutsche Bank.
Trade war and interest rate cuts as main factors
As already mentioned, the fall of the dollar has been influenced by the aggressive tariff rates introduced by Trump in April against US trading partners. At one point, the dollar had lost as much as 15% against major currencies. The Federal Reserve’s decision to resume interest rate cuts in September further increased pressure on the dollar.
According to experts, the lowering of interest rates by the Federal Reserve System could have a negative impact on the dollar course in 2026 as well. Wall Street banks predict that the euro will strengthen to $1.20 by the end of 2026, while the pound sterling, currently at $1.33, could rise to $1.36.
Impact of the dollar exchange rate and future forecasts
The state of the dollar, which remains the world’s leading currency, affects businesses, investors and central banks alike. Its weakness has benefited American exporters, but has caused difficulties for many European companies that derive income from sales in the US.
Analysts say that the dollar rate in 2026 will depend on Trump’s chosen candidate for the position of chairman of the Federal Reserve System. A further drop in the dollar is more likely if the central bank governor is inclined to give in to the White House’s demands for deeper interest rate cuts.
US economic outlook and the technology boom
Despite the fall of the dollar, experts are optimistic about the prospects of the US economy. According to them, the investment boom in the field of artificial intelligence (AI) will ensure faster growth of the US economy next year compared to Europe.
“We don’t think that President Trump’s economic policies can disrupt the technological revolution that is happening on the American West Coast,” said Société Générale currency strategist Kit Jacques.
