USD Index posts 8% annual decline as Fed rate cut expectations mount

The US Dollar Index (DXY) concluded 2025 with an approximately 8% decline, marking its worst annual performance since 2017. This significant depreciation reflects growing market conviction that the Federal Reserve will implement multiple rate cuts throughout 2026, with futures markets pricing in at least 75 basis points of easing by mid-year. The dollar's weakness accelerated in Q4 2025 as economic data pointed to slowing growth and moderating inflation pressures. Major pairs saw substantial moves, with EUR/USD gaining over 9% annually to 1.1250, while GBP/USD rose 7.5% to 1.3100. Speculation about a potentially more dovish Fed leadership succession has further undermined dollar support, with traders positioning for continued USD weakness. Technical indicators suggest the DXY has broken below key support at 101.50, opening the path toward 100.00. The bearish momentum appears set to continue into early 2026, particularly if upcoming US economic data disappoints expectations.