Greenback weakens against major currencies as investors expect deeper Fed easing while global peers turn more hawkish
The US dollar is on course for its weakest annual performance in more than two decades, pressured by growing investor expectations that the Federal Reserve will have room to cut interest rates further, even as other major central banks move in the opposite direction.
The greenback remained under pressure during Asian trading on Wednesday, with stronger-than-expected US economic growth data failing to shift market expectations on monetary policy. Traders are now pricing in around two additional Fed rate cuts in 2026, reinforcing the currency’s downward trend.
Measured against a basket of major currencies, the dollar slipped to a two-and-a-half-month low of 97.767, putting it on track for an annual decline of nearly 10 per cent, a drop not seen since 2003.
Policy uncertainty weighs on US currency
The dollar’s weakness follows a turbulent year marked by market uncertainty around US trade and monetary policy. President Donald Trump’s tariff policies unsettled global investors earlier in the year, triggering a loss of confidence in US assets, while his increasing influence over the Federal Reserve has raised concerns about the central bank’s independence.
Despite a solid US GDP report showing resilient economic growth, investors remained focused on the broader policy outlook, maintaining expectations for looser financial conditions ahead.
Euro, sterling and Antipodean currencies gain ground
In contrast, the euro extended its rally to a three-month high of $1.1806, pushing its year-to-date gain above 14 per cent, its strongest performance since 2003.
The European Central Bank kept interest rates unchanged last week and revised its growth and inflation forecasts upward, a move analysts say reduces the likelihood of near-term monetary easing. Markets have since begun factoring in a slim chance of tighter policy next year.
Similar expectations have emerged in Australia and New Zealand, where the next policy move is increasingly seen as a rate hike. That shift lifted the Australian dollar to a three-month high of $0.6710, bringing its gains for the year to 8.4 per cent.
The New Zealand dollar also touched a two-and-a-half-month peak at $0.58475, supported by a year-to-date rise of 4.5 per cent.
Sterling climbs as BoE outlook steadies
The British pound climbed to a three-month high of $1.3531, extending its annual gain to more than 8 per cent.
Investors currently expect the Bank of England to deliver at least one interest rate cut in the first half of 2026, with markets assigning about a 50 per cent chance of a second cut before the end of the year.
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