Analysis-Dire year for dollar has little light at end of tunnel in 2026

NEW YORK, Dec 22 (Reuters) - A dismal twelvemonth for the U.S. dollar is ending with signs of stabilization, but galore investors judge the currency's diminution volition resume adjacent twelvemonth arsenic planetary maturation picks up and the Fed eases further.

The U.S. dollar slumped 9% this year, against a handbasket of currencies, putting it connected gait for its worst showing ​in 8 years, driven by expectations of Federal Reserve complaint cuts, shrinking involvement complaint differentials with different large currencies, and arsenic concerns astir U.S. fiscal deficits and governmental uncertainty swirled.

Investors broadly ‌expect the dollar to weaken further arsenic different large cardinal banks basal pat oregon tighten argumentation and arsenic a caller Fed Chair takes complaint - a alteration that is expected to herald a much dovish tilt for the cardinal bank.

The dollar typically falls erstwhile the ‌Fed cuts rates arsenic little U.S. involvement rates marque dollar-denominated assets little charismatic to investors, reducing request for the currency.

"The world is we inactive bash person an over-valued U.S. dollar from a cardinal standpoint," Karl Schamotta, main marketplace strategist astatine planetary firm payments institution Corpay, said.

Getting the dollar's trajectory close is important for investors, fixed the currency's cardinal relation successful planetary finance. A weaker dollar boosts U.S. multinational net by expanding the worth of overseas revenues erstwhile converted backmost to dollars, adjacent arsenic it enhances the attractiveness of planetary markets by providing an FX boost beyond the underlying plus performance.

Despite the dollar's rebound successful caller months - the dollar scale is up astir ⁠2% from its September debased - FX strategists person mostly maintained forecasts for ‌a weaker dollar successful 2026, a Reuters survey conducted from Nov. 28 to Dec. 3 showed.

The dollar's existent wide effectual speech complaint - its worth comparative to a ample handbasket of overseas currencies, adjusted for ostentation - stood astatine 108.7 successful October, down lone somewhat from a grounds precocious of 115.1 successful January, showing that the U.S. ‍currency inactive remains overvalued, according to Bank for International Settlements data.

GLOBAL GROWTH

Expectations for dollar weakness hinge connected converging planetary maturation rates with the U.S. vantage expected to constrictive arsenic different large economies summation momentum.

"I deliberation what's antithetic is that the remainder of the satellite is conscionable going to turn much adjacent year," said Anujeet Sareen, portfolio manager astatine Brandywine Global.

Germany's fiscal stimulus, China's argumentation support, and improved maturation trajectories successful the euro portion are expected to trim the U.S. ​growth premium that has supported the dollar successful caller years, investors said.