The US dollar edged slightly higher on Wednesday, but remained on track to post its largest annual decline since 2017, amid interest rate cuts, fiscal concerns, and volatile US trade policy under President Donald Trump — factors that dominated currency markets throughout 2025.

These dynamics are likely to persist into 2026, suggesting that the dollar’s weak performance could extend and continue to influence the behavior of its peers, including the euro and the British pound, both of which recorded strong gains this year.

Dollar sentiment was further weighed down by concerns over the independence of the Federal Reserve under the Trump administration. Trump said he plans to announce his choice for the next Fed chair sometime in January, to replace Jerome Powell when his term ends in May. Powell has faced repeated criticism from the president.

This backdrop has kept “sell-the-dollar” trades firmly entrenched, with traders holding net short positions since April, according to data from the US Commodity Futures Trading Commission.

The euro slipped 0.1% to $1.1736, while sterling traded at $1.3434 on the final trading day of the year. Both currencies are on track to post their largest annual gains against the dollar in eight years.

The dollar index, which measures the US currency against six major peers, stood at 98.35, adding to gains recorded on Tuesday. Even so, the index is down 9.4% in 2025, while the euro has risen 13.4% and the pound has gained 7.5%.

Other European currencies also posted strong advances this year, with the Swiss franc up 14% and the Swedish krona surging 20%.

Prashant Newnaha, Asia-Pacific rates strategist at TD Securities, said the bearish outlook for the dollar in 2026 remains widely supported, with expectations centered on “selling the dollar against the euro and the Australian dollar.”

The dollar received some support in the previous session after minutes from the Federal Reserve’s December meeting revealed deep divisions among policymakers as they cut interest rates earlier this month.

Economists at Barclays noted that some policymakers believed it would be appropriate to keep rates unchanged “for some time.”

In a note, they said: “While this certainly does not preclude the committee from cutting rates in January, it suggests limited support for another cut unless there is further deterioration in labor market conditions.”

Traders are currently pricing in two rate cuts in 2026, despite the central bank itself projecting only one additional cut next year.

Dollar weakness in 2025 helped propel many major and emerging market currencies to strong annual gains.

The Chinese yuan broke the key psychological level of seven per dollar on Tuesday for the first time in two and a half years, defying weaker guidance from the central bank. The yuan is up 4.4% for the year, marking its strongest annual performance since 2020.

The fragile yen stands out

The Japanese yen is among the few currencies that failed to benefit from dollar weakness in 2025, remaining broadly flat despite the Bank of Japan raising interest rates twice this year — once in January and again earlier this month.

On Wednesday, the yen eased slightly to 156.61 per dollar, hovering near levels that have triggered concerns about official intervention, alongside strong warning rhetoric from Tokyo.

Investors have been disappointed by the slow and cautious pace of policy tightening, with the large long-yen position seen in April fully unwound by year-end.

Looking ahead to 2026, MUFG strategists said conditions may align for a pullback that pushes dollar/yen lower, adding: “The lower US Treasury yields fall, the greater the chance for the yen to regain its safe-haven status.”

Meanwhile, the risk-sensitive Australian dollar traded at $0.66965 and is set to post a gain of more than 8% for the year, its best annual performance since 2020. The New Zealand dollar edged slightly lower to $0.57875, but was on track for a 3.4% annual gain, ending a four-year losing streak.

Gold prices fell in European trading on Wednesday, resuming their losses that had briefly paused in the previous session, and touching a two-week low, as renewed correction and profit-taking activity emerged in the final trading sessions of the year, under pressure from a stronger US dollar against a basket of global currencies.

Despite the modest pullback at year-end, the precious metal gold is preparing to post its strongest annual performance since 1979, supported by exceptional and record-breaking demand for gold bullion as one of the most prominent safe-haven assets, amid geopolitical turmoil and global economic shifts that made gold the preferred vehicle for wealth protection in 2025.

Price Overview

• Gold prices today: gold fell by 1.5% to $4,274.23, the lowest level since December 16, from an opening level of $4,339.10, after posting an intraday high at $4,373.24.

• At Tuesday’s settlement, the precious metal edged up 0.2%, after suffering a sharp 4.45% decline on Monday, its largest daily loss since last October, driven by accelerated correction and profit-taking from the all-time high of $4,550.04 per ounce.

US Dollar

The US dollar index rose by more than 0.2% on Wednesday, extending its gains for a second consecutive session and reaching a one-week high at 98.44 points, reflecting continued strength in the US currency against a basket of major and secondary currencies.

According to the minutes of the Federal Reserve’s latest meeting, held on December 9–10 and released on Tuesday, the US central bank agreed to cut interest rates following an in-depth discussion of the risks facing the US economy.

The minutes revealed that the decision to cut rates by 25 basis points to a 3.75% range, the lowest since 2022, faced significant opposition, with nine members voting in favor and three dissenting — the largest number of dissents since 2019.

The minutes also indicated a preference for caution in upcoming meetings, as some participants suggested that keeping rates unchanged “for some time” after the December cut would be the most appropriate option.

The Federal Open Market Committee projected only one additional interest rate cut throughout 2026, signaling a more cautious and hawkish approach compared with earlier expectations.

US Interest Rates

• According to the CME FedWatch Tool, market pricing for keeping US interest rates unchanged at the January 2026 meeting stands at 84%, while the probability of a 25-basis-point cut is priced at 16%.

• Investors are currently pricing in two US rate cuts over the course of next year, while Federal Reserve projections point to only one 25-basis-point cut.

• To reprice these expectations, investors are closely monitoring upcoming US economic data, along with comments from Federal Reserve officials.

Gold Outlook

Independent analyst Ross Norman said gold is experiencing sharp price swings driven by profit-taking as well as the opening of new positions. He added that higher margin requirements at the Chicago Mercantile Exchange have likely curbed the large upside moves that had been expected in precious metals.

Norman also noted that tariffs, the desire to build domestic inventories, and fragile supply chains have all highlighted the strategic importance of certain key metals.

He added that in 2026, the repercussions of these factors will become clearer, not only through higher prices as countries compete to build strategic stockpiles, but also through alternative mechanisms to secure essential commodities.

Annual Performance

Over the course of 2025, which officially ends with today’s settlement, the precious metal gold is up by more than 64%, on track to achieve its third consecutive annual gain and its largest annual increase since 1979.

Drivers Behind This Historic Outperformance

• Central bank buying: the most significant factor was the continued accumulation of gold reserves by central banks worldwide at unprecedented record levels. This shift toward de-dollarization and diversification away from fiat currencies created strong and persistent structural demand, largely insulated from short-term speculative fluctuations.

• Global monetary environment: gold benefited strongly from the shift by major central banks, led by the Federal Reserve, toward interest rate cuts. As gold yields no income, lower rates reduce the opportunity cost of holding it, prompting large investment funds to redirect substantial liquidity from bonds into the yellow metal.

• Escalating geopolitical tensions: amid political instability and conflicts throughout 2025, gold’s role as a trusted global safe haven intensified, with investors and institutions turning to it as protection against wars, economic sanctions, and sudden financial market volatility.

• Inflation hedging: with persistent inflationary pressures and rising global sovereign debt, fiat currencies lost part of their purchasing power, driving individuals and institutions to increase demand for physical gold bars and coins as a tangible store of value and a safeguard against potential economic breakdowns.

• Physical scarcity and production constraints: the mining sector faced difficulties expanding global output in 2025 due to depletion at major mines and rising extraction costs. This relatively stable supply against surging demand provided additional fuel for gold prices to break above historic levels beyond $4,000 per ounce.

• Weakness of the US dollar: driven by Federal Reserve rate cuts, growing concerns about financial stability in the United States, volatile trade policies under Donald Trump, and rising doubts about the Federal Reserve’s independence under the Trump administration.

SPDR Gold Trust

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, keeping total holdings at 1,071.99 metric tons, the highest level since June 21, 2022.

The euro fell in European trading on Wednesday against a basket of global currencies, deepening its losses for a second consecutive session against the US dollar and hitting a one-week low, amid relatively active demand for the US currency, especially after the release of the Federal Reserve’s latest meeting minutes, which revealed a sharp division among officials over the December interest rate cut.

Despite this pullback, the single European currency, the euro, is on track to record its largest annual gain since 2017. These gains are supported by a combination of factors, most notably improving economic growth indicators across the euro area, the relatively hawkish monetary stance adopted by the European Central Bank during the second half of the year, and the broad weakness that dominated the performance of the US dollar in global markets.

Price Overview

• Euro exchange rate today: the euro fell 0.15% against the dollar to 1.1733, its lowest level since December 22, from an opening level of 1.1748, after recording a session high at 1.1749.

• The euro ended Tuesday’s session down 0.2% against the dollar, marking its third loss in the past four days, pressured by the Federal Reserve minutes.

US Dollar

The US dollar index rose by more than 0.1% on Wednesday, extending its gains for a second consecutive session and reaching a one-week high at 98.33 points, reflecting continued strength in the US currency against a basket of global currencies.

According to the minutes of the Federal Reserve’s latest meeting, held on December 9–10, the US central bank agreed to cut interest rates following in-depth discussions about the risks facing the US economy.

The minutes showed that the decision to cut rates by 25 basis points to a 3.75% range, the lowest since 2022, faced significant opposition, with nine members voting in favor and three voting against — the largest number of dissents since 2019.

The minutes also pointed to a tendency toward caution in upcoming meetings, as some participants suggested that keeping rates unchanged “for some time” after the December cut would be the most appropriate course of action.

The Federal Open Market Committee projected only one additional interest rate cut throughout 2026, signaling a more cautious and hawkish approach compared with earlier expectations.

According to the CME FedWatch Tool, market pricing for keeping US interest rates unchanged at the January 2026 meeting stands at 84%, while the probability of a 25-basis-point cut is priced at 16%.

European Interest Rates

• Money market pricing for a 25-basis-point interest rate cut by the European Central Bank in February 2026 remains stable at below 10%.

• To reprice these expectations, investors are awaiting further economic data from the euro area on inflation, unemployment, and wages.

Interest Rate Differential

Following the Federal Reserve’s latest decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest differential since May 2022, which supports the upside potential for the euro against the US dollar.

Annual Performance

Over the course of 2025, which officially ends with today’s settlement, the single European currency, the euro, is up by more than 13% against the US dollar, on track to record its second annual gain in the past three years and its largest annual increase since 2017.

Drivers Behind This Historic Outperformance

• Resilience of the European economy: the euro area posted stronger-than-expected economic growth in 2025, particularly with a rebound in industrial and commercial activity in Germany, the region’s largest economy.

• European Central Bank policy: contrary to expectations, the ECB maintained a relatively hawkish stance compared with the Federal Reserve, especially during the second half of the year, preserving the euro’s appeal as a higher-yielding and more stable currency.

• Weakness of the US dollar: driven by Federal Reserve rate cuts, rising concerns about financial stability in the United States, volatile trade policies under Donald Trump, and growing worries about the Federal Reserve’s independence under the Trump administration.

The Japanese yen declined in Asian trading on Wednesday against a basket of major and minor currencies, remaining in negative territory for a second consecutive session versus the US dollar, amid renewed demand for the greenback, which extended its gains to a one-week high after the release of the Federal Reserve minutes showed a sharp division among officials over the December interest rate cut.

In the final trading sessions of 2025, currency markets are broadly calm due to low liquidity caused by New Year holidays, as traders look ahead after a difficult year for some major currencies, led by the US dollar.

Price Overview

• Japanese yen today: the dollar rose 0.2% against the yen to 156.64, from an opening level of 156.33, with the session low recorded at 156.30.

• The yen ended Tuesday’s trading down 0.2% against the dollar, marking its second loss in the past three sessions, pressured by the Federal Reserve minutes.

US Dollar

The US dollar index rose by more than 0.1% on Wednesday, extending its gains for a second consecutive session and hitting a one-week high at 98.33 points, reflecting continued strength in the US currency against a basket of global currencies.

According to the minutes of the Federal Reserve’s latest meeting, held on December 9–10, the US central bank agreed to cut interest rates following in-depth discussions over the risks facing the US economy.

The minutes revealed that the decision to cut rates by 25 basis points to a 3.75% level, the lowest since 2022, faced significant opposition, with nine members voting in favor and three voting against — the largest number of dissents since 2019.

The minutes also pointed to a more cautious Fed stance in upcoming meetings, with some participants suggesting that keeping rates unchanged “for some time” after the December cut would be the most appropriate option.

The Federal Open Market Committee projected only one additional rate cut throughout 2026, signaling a more cautious and hawkish approach compared with earlier expectations.

According to the CME FedWatch Tool, market pricing for keeping US interest rates unchanged at the January 2026 meeting stands at 84%, while the probability of a 25-basis-point cut is priced at 16%.

Japanese Interest Rates

• On Monday in Tokyo, the summary of opinions from the Bank of Japan’s latest monetary policy meeting — held on December 18–19 — was released, confirming a rate hike to 0.75%, the highest level since 1995.

• The summary showed a clear hawkish shift among most board members, with many highlighting the need for further rate increases ahead. They agreed that gradually raising rates and scaling back monetary stimulus are necessary to ensure long-term price stability.

• Market pricing for a quarter-percentage-point rate hike by the Bank of Japan at its January meeting remains steady at around 20%.

• To reprice these expectations, investors are awaiting further Japanese data on inflation, unemployment, and wage growth.