Dollar Index Experienced Historical Decline: Closing 2025 Weakly

Historic Decline of the Dollar Index

In 2025, the US dollar faced a challenging period in international markets. The dollar index experienced a 9.4 percent decline, marking the most significant annual drop in the last eight years. This indicates the dollar's weakest performance since 2017.

Global Factors at Play

The dollar index depreciated against major currencies such as the euro, Japanese yen, Swiss franc, British pound, Canadian dollar, and Swedish krona. In this decline, uncertainties surrounding President Donald Trump's economic policies and expectations of continued interest rate cuts by the Federal Reserve (Fed) played a significant role.

Interest Rate Cuts and Global Trade Tensions

Notably, claims that Trump might dismiss Fed Chairman Jerome Powell and escalating trade tensions with China increased the risk perception in the markets. Investors, affected by these uncertainties, moved away from the dollar and turned to commodities and precious metals. The dollar index started the year at 108.5 but hit a low of 96.2 in September, the lowest level since February 2022.

Forecasts and Analyses

By the end of the year, the dollar index closed at 98.3. According to analysts, the Fed is expected to implement interest rate cuts in both 2025 and 2026. This situation is likely to increase the pressure on the dollar, while the possibility of a new, more dovish Fed Chairman is also being considered in the markets.

Strengthening of the Japanese Yen

Following statements from Japan's Ministry of Finance hinting at potential excessive volatility in the yen, the decline in the currency index accelerated. Dr. Kutay Gözgör evaluated this situation as a result of the policy divergence among central banks, with the Fed possibly intensifying interest rate cuts to support growth.

Conclusion and Future Predictions

Kit Juckes, Head of FX Strategy at Societe Generale, stated that the decline in the dollar index concentrated in the first half of 2025 and attributed the situation to the uncertainties surrounding Trump's trade policies. While the dollar is expected to remain on a weakening trend in the short term, there is an indication that if a significant slowdown does not occur in the US economy in 2026, the dollar may regain strength.