Most foreign exchange strategists still maintain the view that the USD will weaken next year, based on expectations that the US Federal Reserve (Fed) will cut interest rates. However, a significant portion of analysts have shifted direction, saying the greenback could strengthen in 2026, according to the latest Reuters survey.
The US dollar has now fallen about 9% year-on-year, on track to record its biggest decline since 2017, amid rising tariff risks, labor market concerns, fiscal deficits and doubts about the Fed's independence.
According to data from the US Commodity Exchange (CSTC), the USD net selling position has been maintained continuously since April. In the survey conducted from November 28 to December 3, up to 85% of experts said that the USD net selling trend will not change, while only 8 people predicted the possibility of a reversal to a net buying position.
This development is in line with the interest rate futures market, which is reflecting an almost 85% probability that the Fed will cut 25 basis points at the meeting on December 9-10. However, internal division at the Fed, especially after the US government's temporary shutdown, causing many disrupted economic data, is causing deep disagreements among policymakers on the next direction: Lowering interest rates to support jobs or remaining cautious about the risk of persistent inflation.
Reuters survey results show that the euro is forecast to stay around 1.17 USD for the next three months, increasing to 1.19 USD after six months and 1.20 USD within a year.
We expect the USD to weaken further next year as the Fed continues its rate-cutting cycle, said Lee hardman, senior currency economist at MUFG Bank. However, the December cut may be more happy, reflecting the disagreement within the FOMC.
He also said that the USD is still highly valued, although it is no longer overvalued like at the beginning of this year.
The majority remained pessimistic on the US dollar, with confidence in a prolonged weakening trend starting to crack.
According to a Reuters survey, more than half of strategists said that the main risk in their forecast for the end of 2025 is a weakening USD, while the rest are leaning towards the scenario of this currency strengthening.
This difference is also evident in the short-term outlook: about 30% of experts now expect the USD to appreciate in the next three months, compared to only 6% in the November survey.
That shows that the belief that has lasted for many months in the weakening of the USD is starting to waver and the market may soon enter a new phase of change.
