The world’s leading reserve currency appears set to record its weakest annual performance in more than a decade. The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, fell by around 10 percent by the end of September, with even sharper losses against several individual currencies.

Over the same period, the dollar declined by 13.5 percent against the euro, 13.9 percent against the Swiss franc, 6.4 percent against the Japanese yen, and by 5.6 percent against a basket of major emerging market currencies.

What drove the dollar sell-off in 2025?

The decline reflected a combination of long-standing structural pressures and new vulnerabilities that became more pronounced in 2025.

Persistent concerns included rising US debt burdens, which were exacerbated by the passage of the so-called “Big Beautiful Act,” alongside a gradual erosion of the US growth advantage, particularly amid uncertainty surrounding tariffs.

At the same time, new risks emerged. Global investors began increasing hedges against their exposure to US assets, reversing years of declining hedging when confidence in so-called “US exceptionalism” was at its peak. Political uncertainty also weighed on sentiment, ranging from questions over Federal Reserve independence to heightened market sensitivity to tariff-related headlines.

Together, these forces produced one of the most notable episodes of dollar weakness in recent memory.

Three key questions heading into 2026

1. Is the dollar on a structural downtrend?

Despite the sharp recent decline, the evidence does not point to a full structural breakdown of the dollar. Most of the weakness reflects cyclical and policy-driven factors: slowing US growth, narrowing interest rate differentials, persistent fiscal deficits, and elevated inflation. Shifts in global capital flows, renewed hedging of dollar assets, and declining confidence in US economic policymaking added further pressure.

That said, key structural pillars remain intact. The dollar continues to dominate as the world’s primary reserve and settlement currency and retains its safe-haven appeal during periods of stress.

As a result, the dollar appears more likely to be entering an extended phase of cyclical weakness rather than a long-term structural decline.

2. Has the 2025 decline made the dollar attractive again?

While the sharp sell-off has improved valuations compared with earlier in the year, a longer historical perspective suggests the dollar remains relatively expensive. Among 34 major developed and emerging market currencies, only nine are considered more overvalued than the dollar. This implies the dollar has become relatively cheaper, but not genuinely cheap.

3. How should investors position their portfolios?

For US-based investors, this environment offers an opportunity to increase exposure to non-US markets, not only because many provide better risk-adjusted returns, but also because foreign currency exposure now offers greater upside potential relative to the dollar.

For investors outside the United States, dollar exposure is often already high due to the heavy weighting of US equities in global indices. In this case, balancing the costs and benefits of currency hedging becomes critical.

Hedging costs and returns vary widely. They are close to zero for UK-based investors, reach around 4 percent annually in Japan or Switzerland due to wide interest rate differentials, and can even generate positive returns for investors in high-yield markets such as South Africa.

What could replace the dollar?

Over the long term, even with continued dollar weakness, identifying a clear alternative remains difficult. Gold has gained popularity as a safe haven, but the absence of cash flows complicates valuation, while its high volatility limits reliability.

The Japanese yen appears attractive on valuation grounds, but replacing exposure to US equities with Japanese equities purely for currency reasons is impractical given the dominance of US markets. Fully hedging into a third currency also adds complexity and cost.

As a result, a gradual and flexible approach to currency hedging appears most appropriate, taking into account differences in inflation and interest rates across countries.

Trade war dynamics and a paused Fed dominate 2025

The dollar is set to end 2025 in negative territory, erasing the previous year’s gains and returning to levels last seen in 2022, despite the Federal Reserve remaining largely on hold for most of the year.

Donald Trump’s return to the White House and the launch of “Trade War 2.0” weighed on sentiment, as investors feared tariffs would be more damaging to the US economy. However, the subsequent conclusion of trade deals on relatively more favorable terms for the United States helped support a modest rebound in the dollar over the summer.

As recession fears eased, inflation expectations rose on concerns about the price impact of tariffs, prompting the Fed to adopt a cautious stance and signal a willingness to look through temporary price increases as long as secondary inflation effects did not emerge.

Labor market and inflation: the 2026 dilemma

As the labor market cools, the Federal Reserve faces the risk of stagflation, a scenario that could extend into early 2026. Despite Jerome Powell’s efforts to temper market expectations for rate cuts, investors are pricing in further easing, particularly given the possibility of appointing a more dovish Fed chair.

However, these cuts may occur in the context of a weaker economy rather than a low-inflation environment, leaving the dollar vulnerable to further pressure, especially in the first half of 2026.

The yen

A resumption of Fed easing at a time when other central banks have paused rate cuts leaves the dollar exposed to additional weakness, at least in the first quarter of 2026.

Against the yen, the 140 level remains a critical test, with a risk of Japanese authorities intervening if the currency weakens beyond 158–160 per dollar.

At the same time, the Bank of Japan may become more assertive in raising rates later on, particularly if wage growth continues and inflation remains above 2 percent.

The euro and the pound: diverging paths

For the euro, the 2026 trajectory will depend on the resilience of European growth relative to the pace of US rate cuts. The euro-dollar pair could move back toward 1.20 in a positive scenario, or fall to the 1.13–1.10 range if Europe disappoints.

The outlook for the pound appears more challenging. Slowing growth and easing inflation toward 2 percent point to further rate cuts by the Bank of England, implying additional pressure on sterling.

In a discussion with Matt Cunningham, an economist at FocusEconomics, the key forces that shaped oil and gas markets in 2025 and the outlook for 2026 were examined. The conversation explored how economic fundamentals, policy decisions, and geopolitical developments influenced movements in crude oil and natural gas prices, highlighting the diverging paths of the two commodities. The discussion also looked ahead to next year, addressing supply and demand expectations, LNG capacity, and the geopolitical risks that will continue to define global energy markets.

What were the key economic, fundamental, or geopolitical factors that shaped oil and gas prices in 2025, and which are likely to dominate in 2026?

Cunningham said that the Brent crude price chart this year can be seen as a visual summary of the defining market events of 2025.

Throughout the year, prices continued the downward trend that began in April of the previous year, as OPEC+ persisted with output increases while the Chinese economy struggled under the weight of a weak property sector, subdued consumer confidence, high local government debt, and slowing external demand.

In addition, the “Liberation Day” tariffs imposed by US President Donald Trump pushed prices to levels from which they never fully recovered, apart from a temporary spike in June driven by the 12-day war between Iran and Israel.

Since then, Brent prices have continued to decline after OPEC+ surprised the market with aggressive production increases aimed at reclaiming market share from non-OPEC producers.

Natural gas followed a different path. While prices were initially hit by the tariff announcement, the broader 2025 story diverged sharply from oil. Prices moved higher, with the US benchmark Henry Hub reaching its highest level in nearly three years.

Trump’s election as US president provided support for US gas prices, as he moved quickly to accelerate approvals for liquefied natural gas exports. This led to a surge in LNG shipments this year to record levels.

Looking ahead to 2026, FocusEconomics expects the main trends of 2025 to persist:

Average Brent crude prices are projected to fall to their lowest level since the COVID-19 pandemic.

US natural gas prices are expected to rise to their highest annual average since 2014, excluding the 2022 spike linked to the Russia–Ukraine war.

OPEC+ is expected to continue raising output after a temporary pause in the first quarter of 2026, while global growth is likely to slow as the effects of front-loaded exports ahead of US tariffs fade.

Supply-side uncertainty was a major theme in 2025. How do OPEC+ production decisions affect the outlook for next year?

Global oil and gas production is expected to increase in 2026.

Institutions such as the US Energy Information Administration and the International Energy Agency have raised their forecasts in recent months, reflecting faster OPEC+ supply increases and strong growth in demand for US LNG.

The key question is not whether production will rise, but by how much.

Internal frictions within OPEC+ are likely to persist. Russia may prefer lower output levels given US sanctions, while countries such as Saudi Arabia and the UAE are expected to push for higher production, supported by spare capacity and a desire to regain market share from producers outside the alliance.

At the same time, countries such as Kazakhstan and Iraq continue to exceed their production quotas, while Angola exited the group in late 2023 after disputes over permitted output levels.

On the demand side, do you see global consumption growth approaching a plateau, or is the market still underestimating Asian demand strength in 2026?

Global demand for oil and gas is likely to rise next year.

FocusEconomics expects global oil output to grow by 1.1 percent in 2026, driven by higher production in non-OPEC+ countries such as Guyana and the United States.

Natural gas demand is also expected to increase. The International Energy Agency estimates growth of around 2 percent, pushing consumption to a record level, supported by rising demand from industry and power generation.

Asia remains highly dependent on LNG. The agency projects regional gas demand to rise by more than 4 percent in 2026, with LNG imports increasing by around 10 percent.

These projections could change quickly if the global economy or the energy sector faces new shocks, which is why continuous monitoring of updated forecasts remains essential.

Several major LNG projects have come online or are advancing. How will new capacity, particularly from the United States and Qatar, affect global gas prices in 2026?

Large-scale projects in Qatar and the United States are expected to contribute to a convergence in global gas prices. Forecasts suggest that the relative gap between US gas prices, which are typically lower due to abundant domestic supply, and prices in Asia and Europe will narrow to its smallest level since 2020, when demand collapsed during the pandemic.

In short, record US LNG shipments are expected to lift domestic prices while putting downward pressure on prices abroad.

Unlike oil, gas markets exhibit much wider regional price disparities due to transportation constraints. Oil can be shipped directly, while gas must be liquefied before being transported across oceans. Expanding LNG capacity should help reduce these regional price gaps.

Geopolitically, 2025 saw volatility linked to the Middle East, Russia, and West Africa. Which regions represent the greatest risk or opportunity for supply stability in 2026?

Peace talks between Russia and Ukraine will be a critical factor to watch. Donald Trump has pushed for a peace agreement without success and has repeatedly threatened to withdraw support for Ukraine.

If such threats were carried out, Europe and Ukraine would struggle to withstand Russia on their own, potentially leading to a peace deal favorable to Moscow. This, in turn, could result in the lifting of sanctions on Russia’s oil sector, boosting global supply and exerting downward pressure on oil prices.

The end of 2025 was brutal. More than $1.2 trillion in market value evaporated from the cryptocurrency market in just six weeks. Bitcoin (BTC) lost over 30% of its value, slipping below $82,000 amid a sharp liquidity vacuum.

Leveraged positions were liquidated, ETF outflows accelerated, and passive funds pulled capital simultaneously.

But the current landscape looks different. Panic has faded, leaving behind a more disciplined and focused market. Prices are recovering, albeit slowly, yet the underlying driver this time appears more robust.

Liquidity: where everything begins

The most severe recent blow did not stem from retail panic, but from purely mechanical forces. Business Insider reported that $19 billion in positions were liquidated in a single day, the largest such event in crypto history. As institutions rushed to de-risk, the market was left without any buffer.

At the same time, major central banks are approaching the end of their tightening cycles. Inflation is easing, growth is slowing, and rate cuts have already begun. Historically, Bitcoin tends to perform best when liquidity improves and interest rates decline, as the opportunity cost of holding non-yielding assets like BTC falls.

Supply: quietly tightening

The full impact of the 2024 halving is now clearly visible. Miners are receiving half the previous rewards, prompting many to scale back operations or consolidate.

Meanwhile, CryptoQuant data show that Bitcoin exchange reserves are at their lowest levels since 2018. Coins are simply not moving the way they used to.

A large share of supply is effectively locked away in long-term wallets, ETFs, and corporate treasuries. On-chain data suggest that active supply is scarce. While a full supply shock has not yet materialized, the market is moving closer to one.

Demand: still present, but at a slower pace

ETF inflows stalled in the final quarter of 2025, but they did not collapse, an important shift compared with previous cycles. More than $50 billion flowed into spot Bitcoin ETFs over the past year, and most of that capital has remained in the market.

Asset managers increasingly view Bitcoin as a strategic allocation rather than a short-term trade.

Then there is Strategy, which still holds more than 430,000 Bitcoin and recently raised $1.4 billion in cash. According to JPMorgan analysis, as long as the company is not forced to sell and its market value to net asset value multiple (mNAV) remains above 1, it could act as a stabilizing pillar for the market.

Added to this is the upcoming MSCI decision in January, which will determine whether companies with heavy crypto exposure remain included in major indices. This represents a structural factor with meaningful market implications.

2026 outlook

There is no full consensus, but most credible forecasts place Bitcoin in a $120,000 to $170,000 range. This view is anchored in ETF flows, tightening supply, and improving liquidity conditions.

Fundstrat takes a far more aggressive stance, projecting prices above $400,000. JPMorgan’s volatility-adjusted model, benchmarked against gold, suggests that $170,000 could be achievable if Bitcoin continues to attract capital in a manner similar to commodities, particularly gold.

However, almost no one is pricing in outright euphoria. The prevailing view is for a gradual, measured advance rather than a parabolic surge.

Key risks

ETF outflows could return quickly if the macroeconomic backdrop deteriorates.

The Bybit hack served as a reminder that security remains a weak point, with Decrypt reporting losses of $1.4 billion from a hot wallet breach.

If MSCI were to exclude companies such as Strategy, the market could face negative passive outflows of up to $2.8 billion.

Technical analysis: a corrective phase into late 2026?

From the 2022 low near $16,500 to the 2025 peak around $126,000, Bitcoin appears to have completed a five-wave advance under Elliott Wave theory. If this framework holds, a move below $108,000 by year-end could mark the beginning of a more extended correction.

Under Elliott theory, post-five-wave corrections typically unfold in three phases: a decline (A), a rebound (B), followed by a deeper pullback (C). If this scenario plays out, Bitcoin could remain under pressure until mid-2026. Key potential support levels lie near $84,000, $70,000, and $58,000.

Conclusion: a more resilient market, but with two possible paths

Bitcoin enters 2026 with a more mature market structure: improving liquidity, constrained supply, and institutional demand that has not disappeared. These factors provide a foundation for renewed strength if conditions remain supportive.

At the same time, the recent breakdown and the possibility that a major bullish cycle has already been completed leave the door open to a longer corrective phase.

Whether Bitcoin is headed for another leg higher or has already seen its peak, the next phase will be driven more by underlying mechanics than by speculative sentiment.

From artificial intelligence bubbles to a surge in government spending, and from real estate downturns to oil price spikes, these factors are likely to be among the most influential forces shaping global markets in 2026, whether negatively or positively.

1. The bursting of the artificial intelligence bubble

US technology companies fail to generate tangible commercial returns from artificial intelligence, raising questions about the logic behind massive investments in hardware, software, and related sectors. Technology stocks fall sharply, hitting the top 20% of income earners in the United States, who hold the largest share of domestically owned US equities.

After these wealth gains had supported consumer spending growth over the past two years, at a time when the bottom 60% of the population struggled, the erosion of household wealth leads to weaker consumption in 2026.

Investment in artificial intelligence also declines sharply, putting pressure on the construction and capital investment sectors, which are estimated to have contributed around one percentage point to US economic growth in 2025, and even less once imported equipment is excluded. This pullback alone would be enough to push the US labor market into a full recession.

Impact: The United States enters a recession, with Europe affected to a lesser extent. The Federal Reserve is forced to cut interest rates at a much faster pace.

2. Congress approves “tariff rebates” ahead of the midterm elections

Fiscal policy represents one of the key upside risks to growth and inflation in 2026. President Donald Trump pressures Congress to issue $2,000 checks to 150 million Americans under the label of “tariff refunds,” reviving memories of the pandemic-era stimulus packages that helped ignite inflation.

Although the math does not fully align, and tariffs have already been used to justify the so-called “big, beautiful bill,” political pressure could intensify as the November midterm elections approach.

While such measures could help the bottom 60% of US consumers struggling with high living costs, a large portion of the funds may be used to pay down debt, limiting the overall impact on growth compared with 2020–2021.

Impact: Stronger US growth and higher inflation. The Federal Reserve adopts a more hawkish stance, depending on the degree of political influence over monetary policy decisions.

3. Inflation returns due to AI-related supply bottlenecks

Many economists, particularly the more dovish voices within the Federal Reserve, expect artificial intelligence to deliver a major productivity boost that would help lower inflation. But what if this assumption proves wrong?

In the short term, massive investment in AI infrastructure could crowd out other economic activity. Data centers are expected to account for around 10% of US electricity demand by 2030, placing growing strain on power grids worldwide and increasing the risk of outages and higher prices.

At the same time, rising investment needs could create fresh supply shortages, especially as immigration rules tighten in the United States and Europe, potentially pushing wage growth higher once again.

Impact: Higher global inflation and a shift by central banks toward raising interest rates.

4. President Trump cuts tariffs as their negative effects intensify

There are two possible paths for a decline in the current average US tariff rate of around 16%. The first is a pre-election decision by the administration to reduce tariffs, as it recently did for some food products.

While lower tariff revenues would complicate efforts to secure congressional approval for “tariff rebate” schemes, the president could ultimately roll back trade barriers to ease pressure on consumer prices.

The second path would involve a Supreme Court ruling that tariffs imposed under emergency powers are unlawful, which would invalidate most country-level tariffs. The president could respond by turning to other tools, such as Section 122, which allows temporary tariffs of up to 15% for 150 days, but the outcome would be far more chaotic.

Impact: Faster growth and lower inflation, with the Federal Reserve viewing the growth impulse as dominant and slowing the pace of US rate cuts.

5. European consumers begin to spend more freely

The euro area savings rate stands at around 15%, roughly three percentage points above its pre-Covid average, and saving intentions remain elevated.

However, after rebuilding savings following the 2022 energy crisis, and with inflation stabilizing near 2%, consumers may begin to spend more aggressively in 2026, particularly if governments succeed in reducing uncertainty around pension policies.

Impact: Euro area growth rises above trend, exceeding 1.5% annually, prompting the European Central Bank to raise interest rates in late 2026.

6. Deteriorating US–China relations disrupt rare earth supplies

Tensions between Washington and Beijing eased after a direct meeting between Presidents Trump and Xi Jinping resulted in a 12-month truce, implying stable tariffs and export restrictions through most of 2026.

However, the truce remains fragile, and any miscalculation could derail it. In the absence of restraint, non-tariff measures such as restrictions on rare earth exports could be imposed.

Impact: Direct fallout for the semiconductor, automotive, and defense sectors, with potential shortages and price increases that feed into inflation.

7. A surge in oil prices driven by renewed geopolitical tensions

The biggest upside risk to oil prices remains linked to Russian supply, amid US sanctions and ongoing Ukrainian attacks on energy infrastructure.

While it is widely assumed that Russian oil will continue to find ways around sanctions, greater-than-expected effectiveness could shrink the surplus expected in 2026, posing upside risks to the current Brent crude forecast of $57 per barrel.

Developments involving the United States and Venezuela add further uncertainty, alongside the fragility of the ceasefire in Gaza, which could revive supply risks from the Middle East.

Impact: Slower global growth and higher inflation, with central banks inclined to raise rates or slow the pace of easing.

8. Fiscal stress as bond investors lose confidence

So far, investors have been surprisingly tolerant of the US fiscal deficit trajectory, supported by economic uncertainty and lower interest rates. However, US public finances remain fragile, with the deficit expected to stay in the 6–7% range.

Investor concerns over the scale of debt issuance could intensify, particularly if fiscal expansion coincides with accommodative monetary policy and renewed inflation fears.

Europe is not immune, as pressures could spread from France amid rising spending demands, especially on defense. Bond yields could rise sharply, with the economic outcome depending on central bank responses: a return to quantitative easing, or forced fiscal tightening.

Impact: Painful cuts to government spending, particularly in Europe, and weaker growth.

9. China slips into a deeper slowdown as the property correction intensifies

After stabilizing in early 2025, property prices resumed a faster decline from mid-year. Inventories remain high, and real estate investment continues to weigh heavily on growth.

Default concerns resurfaced after Vanke requested an extension on a bond repayment. Despite supportive policies in 2024, momentum faded in 2025, with growing calls to allow the cycle to run its course, a stance that could carry serious risks.

Impact: Erosion of household wealth, deterioration in bank asset quality, and entrenched pessimism that undermines the shift toward consumption-led growth.

10. The Ukraine war ends with a comprehensive and lasting peace deal

If peace negotiations succeed, the economic impact will depend on how unresolved issues such as territorial recognition are handled, and on the durability of the ceasefire.

In an optimistic scenario, reconstruction efforts could lift economic activity and sentiment in Eastern Europe. Lower energy prices, depending on sanctions relief, could also support global consumption.

However, energy analysts note that Russian oil supplies have not declined significantly in recent years, limiting the impact on the global supply balance, though supply risks would diminish. The gas market would see a larger effect if Europe resumed purchases of Russian gas.

Impact: Lower energy prices boost global growth, potentially prompting some central banks, including the Bank of England, to adopt a more accommodative stance than expected.