New york: The dollar is on track for its worst annual performance since 2017, after declining on Wednesday, and could fall further, as investors bet that the Federal Reserve will have room to continue cutting interest rates next year.
According to Yemen News Agency, a strong reading of US GDP released on Tuesday failed to alter interest rate expectations, leading investors to anticipate two more cuts next year. The euro and the British pound rose slightly to touch three-month highs but remained largely unchanged in recent trading at $1.180 and $1.3522, respectively.
The dollar index fell to a two-and-a-half-month low against a basket of currencies, reaching 97.767 points. The dollar index is on track for a 9.8% annual loss, its biggest one-year decline since 2017, and any further decline in the final week of the year would push it to its largest drop since 2003.
The dollar has had a turbulent year, fluctuating wildly due to tariffs imposed by US President Donald Trump, which triggered a crisis of confidence in US assets earlier this year. Trump's growing influence over the Federal Reserve has also raised concerns about the central bank's independence.
The euro has risen by just over 14% so far this year, putting it on track for its best performance since 2003. The European Central Bank kept interest rates unchanged last week and revised some of its growth and inflation forecasts upward, a move that likely closes the door to further monetary easing in the near term.
Traders are pricing in little chance of monetary tightening next year, based on expectations in Australia and New Zealand that the next step will be an interest rate hike. The Australian dollar has risen 8.4 percent since the start of the year, climbing to a three-month high of $0.6710 today. The New Zealand dollar also touched a two-and-a-half-month high of $0.58475.
The British pound has gained more than 8 percent since the beginning of the year, and investors expect the Bank of England to cut interest rates at least once in the first half of 2026, with a near 50 percent probability of a second cut before the end of next year. The focus is currently on the yen, as investors await potential intervention from Japanese authorities to curb its decline. The dollar was last down 0.3 percent against the Japanese currency at 155.83 yen, after falling 0.5 percent in the previous session.