The dollar will not have a good time in 2025. The Bloomberg dollar spot index fell about 8% for the year, the worst annual decline since 2017. The logic behind this is not complicated - the market is betting that the dollar will continue to weaken.

The key turning point came in April. After US President Donald Trump announced tariffs, the dollar fell sharply and has not rebounded since. Why? A significant reason is the widespread expectation that Trump will appoint a dovish person to replace current Fed Chair Powell. How important is this expectation? Yusuke Miyairi, a foreign exchange strategist at Nomura Securities, bluntly said that the biggest factor affecting the trend of the dollar in the first quarter was the Federal Reserve, including the two policy meetings in January and March, as well as who will take over after Powell leaves office.

From a policy perspective, the policy paths of the United States and other advanced economies are clearly different. The market generally expects the Fed to cut interest rates at least twice next year, which weakens the attractiveness of the dollar. This is confirmed by data released by the US Commodity Futures Trading Commission - traders increased their short bets on the dollar in the week ending December 23. The options market suggests that the dollar will weaken further in January and ease in the following months.

Another driver is the euro. Moderate inflation combined with an upcoming wave of European defense spending, making it almost unlikely that a rate cut in the eurozone is expected, which has driven the EURUSD pair up sharply. The situation is similar in Canada, Sweden and other countries, with the dollar under pressure on several currency pairs.