Dollar Ends 2025 Lower As Rate-Cut Expectations Shape 2026 Outlook
31 December 2025
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The U.S. dollar closed out 2025 on a weaker footing as investors increasingly positioned for interest-rate cuts in 2026, capping the greenback after a volatile year shaped by shifting inflation trends and central-bank recalibration.
The Dollar Index hovered near its late-December lows, reflecting narrowing yield differentials as markets priced in a more accommodative Federal Reserve next year. Treasury yields remained subdued, reinforcing pressure on the dollar against major peers.
EUR/USD and GBP/USD held firm into year-end, supported by improved sentiment toward Europe and expectations that policy divergence with the U.S. may narrow in 2026. The Japanese yen also stabilized after recent volatility, as investors balanced safe-haven demand against speculation around future Bank of Japan policy adjustments.
In broader markets, the softer dollar provided modest support to commodities. Gold maintained its late-year gains, underpinned by lower real yields and ongoing macro uncertainty, while oil prices remained range-bound amid thin liquidity and year-end positioning.
Equity markets showed little reaction, with U.S. indices consolidating near record highs as investors focused on closing the books on 2025 rather than initiating new trades.
Looking ahead, FX traders are turning their attention to early-January data releases and central-bank commentary, which will help determine whether the dollar’s late-2025 weakness marks the start of a longer-term trend or merely a pause before renewed volatility in the new year.
