The Dollar's Doldrums: Waning Supremacy and Global Currency Shifts

The U.S. dollar struggled against most currencies, suffering a significant decline in 2025. Economic uncertainties, including the U.S. fiscal deficit and Federal Reserve decisions, impact its trajectory. The yen remained weak, while the euro and sterling experienced notable gains. Central bank policies and leadership changes will shape currency trends in 2026.

The U.S. dollar began 2026 on a weak note, having faltered against numerous global currencies throughout last year. The yen remained near a 10-month low, as market participants analyzed forthcoming economic data to gauge central bankers' likely interest rate directions for the current year.

In 2025, concerns over the U.S. fiscal deficit, potential global trade conflicts, and uncertainties surrounding Federal Reserve independence adversely impacted the dollar. As a result, many currencies strengthened, with the euro and sterling marking their sharpest annual increases since 2017.

The dollar index recorded its largest annual drop in eight years in 2025, though analysts believe the dollar could rebound, supported by the U.S. economy's relative strength. Upcoming data and leadership changes at the Fed remain pivotal for the dollar's 2026 trajectory.

(With inputs from agencies.)