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After one of its weakest performances in nearly a decade, the U.S. dollar is closing out the year with tentative signs of stability. Still, many investors believe the currency’s struggles are far from over, with expectations growing that renewed global growth and looser U.S. monetary policy could push the dollar lower in 2026.

The dollar has fallen more than 9% this year against a basket of major currencies, marking its worst annual decline in eight years. The slide has been fueled by a combination of anticipated Federal Reserve rate cuts, narrowing interest rate advantages over other economies, and persistent concerns about U.S. fiscal deficits and political uncertainty.

Although the dollar index has recovered roughly 2% from its September lows, most currency strategists see the rebound as temporary rather than the start of a lasting turnaround.

Overvaluation Concerns Persist

Despite this year’s pullback, many analysts argue the dollar remains expensive by historical standards. Measures tracking the currency’s inflation-adjusted value against global peers show it is still hovering near long-term highs, underscoring how limited the correction has been relative to the dollar’s multi-year surge.

From an investment perspective, the dollar’s path matters well beyond foreign exchange markets. A weaker dollar can lift earnings for U.S. multinational companies by increasing the value of overseas revenues, while also making international assets more attractive to global investors.

Still, several market participants warn that valuation alone may not be enough to drive a sharp or immediate decline.