The dollar is expected to remain weak in 2026, after its worst decline in years, amid a slew of factors that are keeping market watchers on edge.
The currency has borne the brunt of geopolitical conflicts and the US-China tariff war, which has reshaped trade alliances and uncertainty in America, the world's biggest economy.
“The fate of the US dollar will continue to be a big story in 2026,” said Gregor Hirt, chief investment officer at Allianz Global Investors. “We expect continued weakness in the currency, but a lower path than 2025.”
This would be “driven by inflation differential favouring Europe and political pressure on the US Federal Reserve”, he said.
Why dollar's strength matters
The US dollar, the world's biggest reserve currency, ended 2025 tumbling about 9 per cent against a basket of currencies for its worst showing since 2017. At one point it was down by 10 per cent.
A weaker greenback has wide-ranging effects. It influences everything from stock markets, commodities, exchange rates and investment returns to raising inflation that ups the prices of imports and goods.
Investors might seek other assets that are not reliant on the dollar. Consumers will not be able to stretch their spending power, most obviously while travelling.
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