The US dollar is set for its steepest annual fall since 2017 as markets price in further weakness driven by the Federal Reserve’s return to rate cuts. The dollar has dropped 9.5% this year against a basket of major currencies; the euro has surged nearly 14% to above $1.17. Wall Street banks forecast the euro at $1.20 and the pound at $1.36 by end-2026.

Analysts say the currency’s slide began after President Donald Trump’s tariff announcements in April and was prolonged when the Fed resumed easing in September. Traders expect two to three quarter-point Fed cuts by the end of 2026, while the ECB has signalled it may hold or raise rates. “This has been one of the worst years for dollar performance in the history of free-floating exchange rates,” said George Saravelos of Deutsche Bank. ING’s James Knightley added the Fed is “still very much in easing mode.”

The dollar’s weakness helps US exporters but hurts some European firms with US sales. Market attention also focuses on the next Fed chair, with reports that candidates perceived as likely to cut more aggressively could further pressure the currency. Mark Sobel of OMFIF warned of a slow erosion of the dollar’s dominance, while SocGen’s Kit Juckes noted US tech-driven growth could limit how far the Fed can cut. #USD #EUR #Fed #FX #FiatNews