The U.S. dollar Wednesday headed for its worst annual performance in more than two decades, according to a Reuters analysis.
Investors risked that the Federal Reserve would have room to cut rates further next year, even as some of its peers looked set to hike.
The currency stayed on the back foot in Asia trade, with a solid U.S. GDP reading failing to move the dial on the rate outlook, leaving investors pricing in roughly two more Fed cuts in 2026.
Against a basket of currencies, the dollar fell to a 2-1/2-month low of 97.767, and was on track to lose 9.9% for the year, which would mark its steepest annual drop since 2003.
The dollar has had a tumultuous year, whipsawed by President Donald Trump’s chaotic tariffs that sparked a crisis of confidence in U.S. assets earlier this year, while his growing influence over the Fed has also raised concerns about its independence.
In contrast, the euro, which rose to a three-month high of $1.1806, is up just over 14% for the year thus far, putting it on track for its best performance since 2003.
The European Central Bank stood pat on rates last week and revised some of its growth and inflation projections upwards, in a move that likely closes the door to further easing in the near term.
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Traders have since responded by pricing in a slim chance of tighter policy next year, mirroring expectations for Australia and New Zealand, where the next moves are seen as being hikes.
That has in turn lifted the two Antipodean currencies, with the Australian dollar, up 8.4% to date, scaling a three-month peak of $0.6710 on Wednesday.
The New Zealand dollar similarly touched a 2-1/2-month high of $0.58475, having risen 4.5% for the year thus far.
Sterling was up at a three-month peak of $1.3531 and has gained more than 8% for the year.
Investors are betting the Bank of England will deliver at least one rate cut in the first half of 2026, and place a roughly 50% chance on a second before the year-end.
