The Dollar Hits Its Worst Level Since Late June

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The US dollar is ending the last full trading week of December 2025 with its sharpest decline since June, Bloomberg reports. Market participants are shifting their focus to macroeconomic data due to be released in early January. Investors are already assessing the likelihood of further monetary policy easing by the Federal Reserve in 2026, and these expectations are largely shaping current movements in the currency market.

The Bloomberg Dollar Spot Index fell by about 0.8% over the week. Since the start of the year, the decline amounts to roughly 8%, which, if the trend holds, would mark the steepest annual drop in the US currency since 2017. The index was largely unchanged on Friday, but the weekly result confirmed a sustained downward trend.

The weakening of the US currency coincided with a period of low market activity toward the end of the week due to the Christmas holidays. This reduced liquidity and made previously formed expectations more visible in market pricing. Under these conditions, exchange-rate moves became more pronounced, particularly among currencies sensitive to global risk appetite. Among major currencies, the Australian dollar and the Norwegian krone posted the strongest gains against the US dollar over the week.



Andrew Hazlett, a foreign-exchange trader at Monex, noted that the dollar had already been in a vulnerable position, and the drop in liquidity only added to the pressure. Going forward, US inflation data will serve as a key reference point for the market, as investors view it as the primary signal for assessing the timing of the next Federal Reserve rate cut.

The dollar’s weakness was accompanied by a moderate decline in US government bond yields. The yield on 10-year Treasuries fell by around two basis points over the week to 4.13%, remaining within the range seen in recent weeks. This movement reflects a cautious reassessment of expectations regarding the future path of interest rates.

At the Federal Reserve’s next meeting, markets are largely expecting no change, with the probability of rates being left unchanged estimated at around 90%. At the same time, traders are pricing in a 25-basis-point rate cut by mid-2026, followed by another cut later in the year. As a result, the dollar is increasingly being traded on expectations of future policy easing rather than on current conditions.

Macroeconomic data released in recent weeks support this scenario. December labor-market statistics showed unemployment rising to its highest level since 2021, while consumer inflation readings came in below forecasts. For the Federal Reserve, this combination of signals expands room for maneuver, while for the currency market it provides further arguments in favor of continued dollar weakness.



Additional confirmation of these sentiments comes from the options market. For five consecutive days, traders have increased positions against the US currency, and one key options indicator now reflects the most pronounced bearish sentiment on the dollar in more than three months. In the coming weeks, investor attention will focus on the December employment report and new US inflation data due in early January. These releases will determine whether the current dollar trend gains further traction or whether the market adjusts its expectations.

Additional sources confirm that the dollar’s weakness is not merely short-term but reflects a broader trend. Reuters reports that by the end of 2025 the US currency is heading toward one of its weakest performances in recent decades, having lost nearly 10% against a basket of major currencies. Despite solid US economic growth, markets are increasingly pricing in further policy easing by the Federal Reserve in 2026, with major investment banks expecting at least two additional rate cuts.

UBS reviews also emphasize that pressure on the dollar in 2025 is driven not only by short-term factors. Futures markets are actively revising expectations for the trajectory of US interest rates, while the dollar’s performance is becoming less correlated with current macroeconomic indicators and increasingly driven by expectations of future Fed decisions.

Expectations of further dollar weakness are also shared by analysts at leading Wall Street banks. According to their estimates, by the end of 2026 the US currency could lose another 3% amid a softer Federal Reserve monetary policy and diverging currency outlooks, as several other central banks maintain a more hawkish stance.

Analysts at International Investment note that the dollar’s weakness at the end of 2025 reflects a structural shift in market expectations. Currency valuations are increasingly being shaped by the anticipated path of US interest rates, as market participants price in a transition by the Federal Reserve toward a more accommodative policy in 2026. Against this backdrop, the dollar’s dynamics are becoming less sensitive to current data and more responsive to any signals capable of altering expectations for inflation and the labor market. The release of key macroeconomic data in early January will be a decisive factor in refining this scenario and shaping investors’ positioning going forward.