US Dollar Set for Worst Year Since 2017: Drops Nearly 9.5% as Major Currencies Surge

The foreign exchange markets have been dominated by a sharp decline in the US dollar this year. The US Dollar Index (DXY) is on track for its steepest annual drop since 2017, down approximately 9.5% against a basket of major global currencies. This decline has sparked renewed concerns about the dollar’s future role as the world’s reserve currency and what lies ahead in 2026.

Why the Dollar Is Falling The weakness of the greenback is the result of several interlinked factors: Anticipated Federal Reserve Rate Cuts – After a series of interest rate reductions in 2025, markets are now preparing for further monetary easing in 2026. Lower yields reduce the appeal of dollar-denominated assets. Fiscal and Political Uncertainty – Escalating trade tensions and tariff policies, particularly under President Donald Trump’s administration, have created additional concerns among global investors and triggered risk reassessments. Diversification of Global Reserves – Central banks and institutional investors are gradually reducing their exposure to the dollar and shifting reserves into other currencies and assets.

Strong Gains for Euro, Pound, and Commodity Currencies While the dollar slumps, several major currencies have posted significant gains: 🔹 The euro (EUR) is up around 13.5% for the year, marking one of its best annual performances in nearly a decade.

🔹 The British pound (GBP) has gained roughly 7.6%, reflecting investor confidence in the UK’s relative stability.

🔹 Commodity-linked currencies such as the Australian and New Zealand dollars have also strengthened, while the Japanese yen remains flat despite two rate hikes from the Bank of Japan.

Impact on Emerging Markets The dollar’s decline is reverberating through emerging economies: The Indian rupee has had its weakest annual performance since 2022, falling by nearly 4.7% against the dollar due to a wide current account deficit and waning foreign inflows.

On the other hand, some commodity-driven and export-oriented currencies have outperformed thanks to higher asset prices and increased regional capital flows.

Market Outlook and Expert Views Strategists from top financial institutions expect continued dollar weakness in 2026, driven by global economic growth and additional Fed rate cuts. Forecasts suggest the euro could climb toward $1.20, while the pound may rise to $1.36 in the coming year.

Looking Ahead to 2026 A weaker dollar brings mixed effects: improved export competitiveness for US goods, but also more expensive imports and upward inflationary pressure. Investors are also closely watching the credibility of US monetary policy, especially amid debates over the Federal Reserve’s independence and the country’s long-term fiscal trajectory.

In Summary: The US dollar is heading toward its worst annual performance since 2017

The euro and pound are rallying amid global reserve diversification

Emerging markets are reacting to shifting capital flows

Continued pressure on the dollar is expected into 2026

#usd , #dollar , #globaleconomy , #Fed , #EUR

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