Currency strategists are forecasting a continued soft outlook for the U.S. dollar at the start of 2026, citing concerns over Federal Reserve independence and the likelihood of further interest rate cuts.
The dollar fell nearly 10% against major currencies last year, marking its weakest performance since 2017. Investors weighed the impact of record-high U.S. tariffs, a softening labor market, and trillions of dollars in planned government borrowing. Questions over who will succeed Fed Chair Jerome Powell, whose term ends in May, are also weighing on market sentiment.
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A Reuters poll of 71 currency strategists showed the euro is expected to rise about 1% per quarter, reaching $1.20 by the end of 2026, with only 17% predicting a weaker euro. Analysts note that any political interference in the Fed, including potential attempts to remove governors, could accelerate dollar weakness.
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The Fed has already cut the federal funds rate three times since September to a range of 3.50%-3.75% and projects at least one more reduction this year. Officials remain divided between concerns about inflation still above the 2% target and the need to support a weakening labor market.
Analysts also caution that the economic impact of tariffs and fiscal expansion is still unfolding, and the dollar’s easing bias is expected to persist.
Nearly 90% of traders polled plan to maintain or increase net-short dollar positions by the end of January, signaling continued market expectations for dollar softness.
Esther Ososanya is an investigative journalist with Pinnacle Daily, reporting across health, business, environment, metro, Fct and crime. Known for her bold, empathetic storytelling, she uncovers hidden truths, challenges broken systems, and gives voice to overlooked Nigerians. Her work drives national conversations and demands accountability one powerful story at a time.
