Khaberni - The dollar remained stable on Wednesday, but it is heading to record the biggest annual decline since 2017, as interest rate cuts and concerns about the financial situations and volatile trade policies under President Donald Trump impacted the currency markets during 2025.
Many of those concerns are likely to persist into 2026, suggesting that the dollar's weak performance could continue and support other major currencies such as the euro and the British pound, which have seen significant gains this year.
Adding to the dollar's troubles is the ongoing concern about the Federal Reserve's independence under the Trump administration, with the President announcing that he intends to announce his choice for the Federal Reserve chairmanship in January, replacing Jerome Powell whose term ends in May and who has faced repeated criticism from the president.
Japanese markets are closed for the rest of the week, and with most markets closed on Thursday for the New Year's Day holiday, trading volumes are likely to be very low.
The euro stabilized at 1.1747 dollars and the British pound at 1.3463 dollars on the last trading day of the year. Both are headed to record the biggest annual gains in eight years.
The dollar index, which measures the performance of the US currency against six other major currencies, stood at 98.228, holding onto the previous night's gains. The index fell 9.5% during 2025, while the euro rose 13.5% and the pound gained 7.6%.
Prashant Newnaha, an analyst focused on the Asia-Pacific region at TD Securities, said that the assumption of the dollar's tendency to weaken in 2026 still enjoys strong support with "a predisposition for the dollar to weaken against the euro."
The dollar received a slight boost in the previous session after the minutes of the Federal Reserve's December meeting showed a sharp division among monetary policymakers when cutting interest rates earlier in the month.
Traders expect two interest rate cuts in 2026, although the central bank itself expects only one cut.
The dollar's weakness in 2025 supported a number of major currencies and also led emerging markets to achieve strong gains.
The Chinese yuan breached a key psychological level of seven against the dollar on Tuesday for the first time in two and a half years, and is on track to achieve a 4% increase for the year, marking its biggest gain since 2020.
The Japanese yen was one of the few currencies that did not benefit from the dollar's weakness in 2025, as it remained broadly stable throughout the year even as the Bank of Japan raised interest rates twice.
The yen stabilized on Wednesday at 156.35 against the dollar, slowly moving away from levels that raised concerns about government intervention and severe warnings from officials in Tokyo.
The Australian dollar reached 0.66965 US dollars in the latest transactions, heading for a rise of more than 8% over the year, marking its best annual performance since 2020. The New Zealand dollar fell slightly to 0.57875 US dollars but is on track to rise 3.4% over the year, ending a four-year streak of losses.
