The USD went almost sideways in Tuesday's trading session, as the market waited for the minutes of the December meeting of the US Federal Reserve (Fed). Meanwhile, the Chinese yuan continued to appreciate and surpass an important psychological threshold compared to the greenback.
Market liquidity decreased due to the year-end holiday, making fluctuations more sensitive. Traders believe that the USD is likely to still be under pressure in the context that monetary policy prospects are leaning towards easing.
Since the beginning of the year, the USD has been on track to record a decrease of nearly 10% - the strongest decrease since 2017.
Some experts believe that the minutes of the Fed's December meeting, when the US central bank began to cut interest rates, may strengthen expectations for further easing waves. The market has now reflected the possibility that the Fed will continue to cut interest rates twice in 2026.
Euro and British pound towards year of strong price increases
The Euro is currently trading around 1,1767 USD, on an upward trend of nearly 14% for the whole year. Meanwhile, the British pound reached 1,3508 USD, recording an increase of about 8% in 2025.
The USD Index – a measure of the strength of the greenback against the major currency basket – is heading for a 9.6% decline this year, marking the deepest decline in 8 years.
The main reason comes from expectations that the Fed will continue to lower interest rates, the interest rate gap between the US and major economies narrowing, along with concerns about budget deficits and political instability in the US. This index currently fluctuates around 98.03 points, near the lowest level in three months.
MUFG strategists predict the USD may fall by another 5% next year, as US economic growth prospects and monetary policy orientation continue to be the main influencing factors.
However, some other opinions suggest that the USD's decline may slow down. According to Mr. Guy Miller, Market Strategy Director at Zurich Insurance Group, the USD has stabilized in recent months and there is not much room for the Fed to continue to cut interest rates.
We believe that the USD will fluctuate in a narrow range around its current level against major currencies. Since the summer, the exchange rate has been almost flat, especially against the Euro and Swiss Franc," Mr. Miller said.
