The U.S. dollar has declined by slightly more than 9 percent since January 2025 against a basket of major global currencies, marking a turbulent year for the greenback. The drop was sharpest in the first half of the year, driven by former President Trump’s threats of steep tariffs on trade partners and the Federal Reserve’s decision to lower interest rates in an effort to sustain economic growth. n nThrough the summer and early fall, the currency stabilized, showing minimal movement. However, from mid-November onward, it resumed a downward trend, with signs suggesting further depreciation could occur in 2026. n nCurrency fluctuations typically benefit some sectors while disadvantaging others. Investors tend to favor currencies of countries expected to outperform economically or offer higher returns through interest rates. In late 2024, the dollar strengthened on optimism about U.S. growth. That sentiment reversed when trade tensions escalated, triggering a loss of investor confidence. n nLooking ahead, Cornell economist Eswar Prasad argues the dollar is likely to weaken further, citing anticipated political and economic pressures to reduce interest rates in the U.S., while other major central banks may move in the opposite direction. He also noted that the U.S. labor market is weakening compared to major European and Asian economies as 2026 approaches. n nGary Schlossberg of the Wells Fargo Investment Institute acknowledges ongoing policy uncertainty—including concerns about the Federal Reserve’s independence and political pressure to maintain low rates—as factors undermining global confidence. Yet his forecast diverges from Prasad’s. n n“We still expect the dollar to remain stable or slightly stronger,” Schlossberg stated. n nHe believes that even if the U.S. economy slows, others face deeper challenges: China’s reliance on exports masks underlying structural weaknesses, while Europe contends with fiscal and political instability. n nDespite these differing views, the majority of economists anticipate continued dollar depreciation. A weaker currency could benefit American exporters by making U.S. goods more affordable abroad. However, it may also contribute to inflation, as imported goods—from clothing to food—become more expensive for consumers. n— news from marketplace.org
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2025 was a bumpy year for the U.S. dollar. What will 2026 bring?
It’s not been a very good year for the U.S. dollar. The greenback is down a little over 9% since January 2025, against a basket of other major world currencies. It slid pretty sharply in the first half of the year, as President Trump threatened steep tariffs on allies and other trading partners and the Federal Reserve cut interest rates to maintain the momentum of U.S. economic growth. n nDuring the summer and early fall, the dollar settled into a relatively stable pattern — not moving up or down very much. But since mid-November, it’s been edging lower again. And there are indications it could keep sliding in 2026. n nWhich — as is always is the case with currency fluctuations, and with most other economic dynamics as well, come to think of it — would benefit some parts of the U.S. economy, and harm others. n nGlobal investors plow more capital into a country, driving up its currency, when they think its economy is going to outperform others, or its central bank will offer higher interest rates, juicing their returns. n nThat’s what happened in late 2024, as the dollar rose on strong growth expectations. Then President Trump’s tariffs were announced, investors got worried, and the dollar fell. And next year? n n“Logically, the dollar ought to weaken, because it looks like there will be economic as well as political pressures in the U.S. to cut interest rates, while at the same time other major central banks could be moving in the other direction,” said Cornell economist Eswar Prasad. n nAlso, he said, the U.S economy looks more dicey than major European and Asian economies heading into 2026 with the labor market softening. n nThere’s also still plenty of policy uncertainty in the U.S., including questions about the Federal Reserve’s independence and political pressure for lower interest rates. That’s undermining global investor confidence, said Gary Schlossberg at the Wells Fargo Investment Institute. Still, Schlossberg’s prediction for the dollar next year runs counter to Prasad’s. n n“We still think the dollar will be steady to slightly firmer,” he said. n nSchlossberg thinks even as the U.S. economy weakens, others are in worse shape: n n“China, really dependent on exports to drive growth, that’s masking structural issues. In Europe, there are some fiscal uncertainties, political uncertainties,” he said. n nStill, the prevailing consensus among economists does seem to be that the dollar will continue to weaken. Which will likely be good for U.S. exporters, making their products more competitive abroad. But it’ll contribute to inflation, since so much of what we consume, from food to clothing, is imported.