The dollar is on track to close 2025 with its biggest annual drop since 2017. And expectations are for more to come in 2026, amid interest rate cuts promoted by the Federal Reserve (Fed, the central bank of the United States).
The US dollar has fallen 9.5% against a basket of major global currencies, according to calculations by the Financial Times (FT), driven by the trade war promoted by President Donald Trump and investors beginning to question the status of the "greenback" as a safe haven for investors.
Among the world's major currencies, the euro gained the most value against the dollar, rising almost 14% to above US$1.17. This is the highest level recorded since 2021.
The real, in turn, has risen 12.5% this year, the biggest increase since 2016, according to a survey by the consulting firm Elos Ayta commissioned by NeoFeed . The comparison was made using the Ptax dollar, the official reference exchange rate for the dollar in Brazil.
Although the weakening of the dollar began with Trump's trade policy in April, accumulating a 15% drop against major global currencies, the Fed's interest rate cuts starting in September helped to put pressure on the currency.
The fall of the dollar in 2025 was not as pronounced, partly due to the failure to materialize expectations that tariffs would lead the United States into a recession . Investments in the artificial intelligence (AI) thesis, which boosted American stock markets throughout the year, also helped to curb the dollar's devaluation.
But the trend is downward, with monetary policy continuing to push the dollar down. This stems from signals from the Fed that it should cut interest rates next year – expectations range between two and three cuts of 0.25 percentage points – while other monetary authorities, such as the European Central Bank (ECB), indicate that they will maintain and even raise interest rates.
In the case of Brazil, even though the expectation is that the Monetary Policy Committee (Copom) of the Central Bank (BC) will begin to loosen monetary policy next year, the Selic rate will remain at a fairly high level, maintaining an interest rate differential favorable to the appreciation of the real. Currently, the Selic rate is at 15% per year, and market consensus indicates that the rate should end 2026 at 12.25% per year, according to the Focus Report.
The dollar's trend in 2026 will also be influenced by the name Trump chooses to replace Jerome Powell at the helm of the Fed starting in May. Above all, it will depend on whether the elected candidate meets the White House's demands for deeper interest rate cuts to stimulate the economy and exports.
The Financial Times has learned that bond investors have signaled concerns to Treasury Department officials regarding Kevin Hassett, considered a frontrunner to succeed Trump. The fear is that he will obey Trump's orders instead of following economic data, signaling a loss of independence for the Fed.
A Fed fully aligned with the White House is generating concerns about US economic policy, which could harm the dollar's status in the days following "Liberation Day," the date on which Trump announced his tariff hikes .
