Insights 
VT 
Key Points
- The dollar index fell to 97.767 and is down 9.9% this year, its steepest drop since 2003.
- Markets price roughly two more 25 bp Fed cuts in 2026, targeting a 3–3.25% policy rate.
The US dollar remained under pressure on Wednesday, heading for its worst annual performance in more than two decades.
Despite a solid US GDP reading, the greenback failed to find support as traders stayed focused on the Federal Reserve’s easing outlook rather than near-term growth resilience.
Against a basket of currencies, the dollar index slipped to a 2½-month low of 97.767. It is now on track to lose 9.9% in 2025, marking its sharpest annual decline since 2003.
In Asian trade, the dollar stayed on the back foot, reflecting entrenched bearish positioning rather than a reaction to fresh data.
Fed Outlook Tilts Dovish Despite Growth Resilience
Markets continue to price in further policy easing from the Federal Reserve, with traders expecting roughly two more rate cuts in 2026.
Goldman Sachs Chief US Economist David Mericle said the Federal Open Market Committee is likely to compromise on two additional 25-basis-point cuts, taking rates to 3–3.25%, while noting that risks remain tilted to the downside as inflation slows.
The failure of strong GDP data to shift expectations highlights how firmly the market narrative has turned. Traders appear more focused on disinflation trends and liquidity conditions than on backwards-looking growth figures.
Confidence in US Assets Comes Under Scrutiny
The dollar’s weakness this year has also reflected broader concerns about the stability of US assets.
President Donald Trump’s tariff policies earlier in the year triggered volatility and dented confidence, while his growing influence over the Federal Reserve has raised questions about institutional independence.
Technical Analysis
The US Dollar Index has extended its decline, falling to its lowest level since early October and threatening to break below key horizontal support at 97.40.
This marks a significant reversal from the highs near 100.40 seen in late November, driven largely by shifting Fed rate expectations and market appetite for risk.
The moving averages (5, 10, 30) have begun to fan downward, with short-term MAs crossing below longer-term averages — a bearish signal that confirms trend weakness.
The MACD is firmly in negative territory, with widening distance below the signal line and growing red histogram bars, reinforcing the downward momentum.
Cautious Near-Term Outlook for the Dollar
The dollar may remain under pressure as long as rate cut expectations dominate and confidence concerns linger. Thin year-end liquidity could exaggerate moves, especially if central banks outside the US maintain firmer policy stances.
Any recovery in the dollar would likely require a clear shift in Fed communication or a sustained rebound in inflation data, neither of which markets currently expect.
