The US Dollar Index (DXY) saw a small rise during a calm year-end session. It hit a peak of 98.44 before settling around 98.25 at the start of the US trading day. Right now, the DXY is about 2% lower than its November high of 100.40 and is on track for an almost 10% drop for the year, making it the worst performance in eight years. Worries about US trade policies and an economic slowdown have increased short positions on the US Dollar. Political pressure on the Federal Reserve has raised concerns about its independence, which leads to questions about the Dollar’s status as a global reserve currency. The Federal Reserve is currently easing its monetary policy while other central banks are keeping their rates steady. This situation is likely to put continued pressure on the Dollar.

Impact Of US Jobless Claims

As the year wraps up, trading volumes are low, but the US weekly Jobless Claims report might still affect the foreign exchange market. Applications for unemployment benefits are expected to rise to 220K from 214K, which could negatively impact the USD. The US Dollar is the most traded currency globally, accounting for 88% of foreign exchange activity, around $6.6 trillion a day. Its value mainly relies on the Federal Reserve’s monetary policy, including interest rate changes and strategies like quantitative easing or tightening. We anticipate that the US Dollar will continue to face challenges as we move into 2026. The Federal Reserve has already cut rates three times in 2025, while other central banks, like the ECB, have kept rates unchanged for six months. This difference makes the Dollar less appealing to investors seeking higher yields. Signs of an economic slowdown are becoming clearer. The final third-quarter GDP for 2025 was revised down to a weak 0.8% annual growth. With November’s inflation dropping to 2.3%, we believe the Fed has room for further rate cuts, maintaining a bearish outlook. For those trading derivatives, this might mean looking into put options on the DXY or selling futures contracts in the coming months. The latest jobless claims data showed a worse-than-expected outcome, with 225,000 claims for the last full week of December, reinforcing a negative view on the Dollar. Historically, a weakening labor market has often preceded more Fed easing, as we saw before the recessions in 2001 and 2008. This suggests that any short-term strength in the Dollar during the quiet holiday season could present a chance to take bearish positions.

Effect Of Trade Policy And Political Pressure

Concerns about trade policy and political pressure on the Federal Reserve are also crucial factors to consider. Such uncertainty often leads to increased volatility, making options strategies like straddles or strangles potentially useful for traders expecting larger price fluctuations in early 2026. This environment undermines confidence and could keep putting downward pressure on the Dollar’s value. Create your live VT Markets account and start trading now.

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