US dollar heads for worst year since 2017, with more losses seen

The U.S. dollar is poised to close 2025 with its steepest annual decline in eight years, and derivatives markets indicate traders are bracing fro further losses in the final days of the final days of the year and into 2026.

The Bloomberg Dollar Spot Index has fallen around 8% this year, its weakest performance since 2017.

The slide accelerated this week, with the index touching its lowest level since early October.

Analysts attribute the sustained pressure to market expectations that the Federal Reserve will continue cutting interest rates in 2026, potentially diverging from other major central banks that are nearing the end of their own easing cycles.

The bearish sentiment is clearly reflected in the options market. Major gauges of market positioning, known as risk reversals, indicate traders are most pessimistic on the greenback in three months.

Recent data shows the euro and the Australian dollar have been the primary vehicles for showcasing these downbeat dollar views.

However, analysts warn the trend is not without risk. The currency remains vulnerable to a sharp, data-driven rebound if strong U.S. economic indicators force a hawkish reassessment of the Fed’s policy path.

Despite this caution, the prevailing market signal indicates to a weakening dollar extending its record-breaking slump into the new year.