Insights 
VT 
The US dollar remained under strain on Wednesday and is on course for its weakest annual showing in more than twenty years.
Even with a firm US GDP print, the greenback failed to gain traction as market participants continued to prioritise the Federal Reserve’s easing trajectory over signs of near-term economic strength.
Measured against a basket of major currencies, the dollar index slipped to a two-and-a-half-month low of 97.767. It is now heading for a near 9.9% decline in 2025, which would mark its steepest annual fall since 2003.
During Asian trading hours, the dollar stayed subdued, reflecting deeply embedded bearish positioning rather than any response to new economic releases.
Fed Expectations Turn Increasingly Dovish Despite Solid Growth
Markets remain firmly priced for additional policy easing by the Federal Reserve, with traders anticipating around two further interest rate cuts in 2026.
Goldman Sachs’ Chief US Economist, David Mericle, noted that the Federal Open Market Committee may ultimately settle on two extra 25-basis-point reductions, bringing the policy rate into a 3.00–3.25% range. He added that risks are still skewed to the downside as inflationary pressures continue to ease.
The inability of robust GDP data to alter expectations underlines how decisively the market narrative has shifted. Investors appear more focused on disinflation, liquidity conditions and forward-looking policy signals than on historical growth data.
Confidence In US Assets Faces Growing Questions
The dollar’s underperformance this year has also mirrored broader unease surrounding US assets more generally.
Earlier tariff measures introduced by President Donald Trump injected volatility into markets and weighed on investor confidence. At the same time, his increasing influence over the Federal Reserve has sparked debate around the central bank’s independence, adding another layer of uncertainty.
Technical Analysis
The US Dollar Index has extended its downward move, falling to its lowest level since early October and edging closer to a potential break below the key horizontal support around 97.40.
This represents a notable reversal from the late-November highs near 100.40, driven primarily by changing expectations for Fed policy and an improved appetite for risk across markets.
Short- and medium-term moving averages (5, 10 and 30 periods) have started to slope lower, with shorter-term averages crossing beneath longer-term ones, a bearish configuration that reinforces the weakening trend.
Momentum indicators also point lower. The MACD remains firmly negative, with the gap below the signal line widening and red histogram bars expanding, signalling persistent downside momentum.
Near-Term Outlook Remains Cautious
The dollar is likely to stay under pressure as long as expectations for rate cuts remain dominant and concerns over confidence persist. Thin year-end liquidity could amplify price swings, particularly if other major central banks continue to hold comparatively tighter policy positions.
A meaningful rebound in the dollar would probably require a clear shift in Federal Reserve messaging or a sustained resurgence in inflation data. At present, markets see little evidence that either scenario is imminent.
