The U.S. dollar is on track to close 2025 with its worst annual performance since 2017, falling 9.5% against a basket of major currencies. The move highlights a major shift in global foreign-exchange markets as investors reassess the outlook for U.S. interest rates, fiscal stability, and political uncertainty. At the same time, several major currencies posted strong gains, suggesting that dollar weakness has become one of the defining macro themes of the year.
Euro and Pound Lead the Move Higher
Among the strongest performers, the euro rose 13.5% in 2025, putting it on course for its best yearly gain in eight years. The British pound advanced 7.6%, also marking one of its strongest annual performances over the same period. These gains came as global currency markets responded to shifting expectations around monetary policy and broader economic conditions beyond the United States.
The Chinese yuan gained 4% during the year and moved through the psychologically important seven-per-dollar threshold, a level closely watched by traders and policymakers alike. In contrast, the Japanese yen remained broadly flat, making it an outlier among major currencies. That relative stability persisted even after the Bank of Japan delivered two rate increases, underscoring how diverging domestic and international forces shaped the FX market in 2025.
What Weighed on the Dollar
The source material points to several key drivers behind the dollar’s decline. First, markets increasingly priced in the possibility of Federal Reserve rate cuts, reducing the yield advantage that had previously supported the greenback. A softer rate outlook tends to diminish foreign demand for dollar-denominated assets, especially when investors believe the peak in U.S. rates has passed.
Second, fiscal concerns added another layer of pressure. When investors become more cautious about government finances, confidence in a currency can weaken, particularly if those worries coincide with expectations for looser monetary policy. Third, the report notes continued political pressure from the Trump administration as an additional source of uncertainty. Political instability or policy unpredictability often pushes currency traders to demand a larger risk premium, which can further weigh on the dollar.
2026 Outlook Still Favors Dollar Weakness
Looking ahead, Goldman Sachs strategists expect the dollar to remain under pressure in 2026. Their view is tied to a combination of solid global growth and anticipated Fed easing. If global economic momentum remains resilient while the Federal Reserve moves toward lower rates, other major currencies may continue to benefit at the dollar’s expense.
This outlook matters not only for traditional FX markets but also for broader cross-asset positioning. The U.S. dollar often serves as a central reference point for commodities, sovereign debt, equities, and digital assets. A prolonged period of dollar weakness can alter capital flows, affect hedging behavior, and influence relative asset valuations around the world.
A Key Macro Signal for Global Markets
While the original report focuses on currency performance rather than crypto prices directly, the dollar’s 9.5% annual decline remains a major macro signal. For market participants, such a move can reshape expectations around liquidity conditions, international purchasing power, and risk appetite. The strong gains in the euro and pound, the yuan’s break through the seven-per-dollar level, and the yen’s unusual flatness together paint a picture of a foreign-exchange market undergoing a meaningful rebalancing.
In that context, 2025 may be remembered as a year when confidence in the dollar weakened materially and investors looked more aggressively to alternatives across the global currency landscape. Whether that trend extends through 2026 will likely depend on the Fed’s policy path, the evolution of U.S. fiscal risks, and the degree to which political uncertainty continues to shape investor sentiment.