Global Growth Shifts Could Weigh on the Dollar
A key factor shaping expectations for 2026 is the outlook for global growth. Investors increasingly believe the United States’ growth advantage will narrow as other major economies regain momentum.
Fiscal stimulus in Germany, ongoing policy support in China, and improving conditions across the euro zone are all seen as reducing the relative appeal of U.S. assets. As growth differentials shrink, capital flows that previously favored the dollar could begin to shift elsewhere.
Some investors caution, however, that a meaningful slowdown in the U.S. economy could complicate the picture. While weaker growth might pressure the dollar, it could also trigger broader market volatility that temporarily boosts demand for safe-haven assets.
Central Bank Policy in Focus
Monetary policy divergence remains another major driver. The Federal Reserve cut interest rates in December, and policymakers have signaled openness to additional easing next year. Lower U.S. rates tend to reduce demand for dollar-denominated assets, placing downward pressure on the currency.
Markets are also factoring in leadership changes at the Fed, with expectations that a new chair could lean more dovish. Several potential candidates have previously expressed support for lower interest rates, reinforcing investor expectations of a softer policy stance.
Meanwhile, other major central banks, including the European Central Bank, are widely expected to keep rates steady, with some analysts not ruling out tightening if inflation proves persistent.
