Overview
- The dollar index fell about 9% in 2025, its steepest annual drop in eight years, as shrinking rate differentials and policy doubts weighed on the currency.
- Early trading in 2026 was subdued with the euro and sterling holding sizable 2025 gains, while the yen hovered near 10‑month lows against the dollar.
- Late December data lifts—stronger jobless claims, firmer home prices and a higher Chicago PMI—pushed the dollar to one‑week highs alongside rising Treasury yields.
- Futures point to two Fed rate cuts in 2026 versus a divided Fed’s median outlook for one, and markets put only a small probability on a January move.
- The Fed’s new $40 billion‑per‑month T‑bill purchases and questions around the next Fed chair, after President Trump’s criticism of Jerome Powell, are seen capping sustained dollar rebounds.