Une inflationary gap, the Fed's continuous interest rate cuts, and political instability in the US are leading investors to predict a continued weakening of the US dollar, altering global capital flows in 2026. Photo: THX/TTXVN
According to the National News (UAE), the US dollar enters 2026 with growing concerns after recording its sharpest decline in nearly a decade. Experts predict the weakening trend will continue, influenced by geopolitical conflicts, trade tensions, and political pressure on the Federal Reserve (Fed).
The worst decline since 2017.
The US dollar, the world's largest reserve currency, ended 2025 down about 9% against a basket of currencies, its worst decline since 2017. At one point, it had fallen as much as 10%.
Gregor Hirt, Chief Investment Officer at Allianz Global Investors, commented: "The fate of the US dollar will continue to be a big story in 2026. We predict it will continue to weaken, but at a lesser extent than in 2025." He believes this is driven by inflation differentials favorable to Europe and political pressure on the Fed.
This currency has suffered heavily from geopolitical conflicts and the US-China trade war, which have reshaped trade alliances and caused instability in the world's largest economy .
A weaker US dollar has far-reaching effects on the global economy. It impacts everything from stock markets, commodities, exchange rates, and investment returns to fueling inflation, leading to higher prices for imports and goods.
Investors may seek other assets that are not dependent on the USD. Consumers will not be able to increase spending freely, which is most evident when it comes to travel.
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There are certain asset classes that appreciate when the US dollar weakens, and gold is expected to be the biggest beneficiary in 2025. Gold prices have surged through multiple highs, reaching over $4,549 per ounce last week.
According to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, the rise in precious metal prices is driven by currency devaluation – the idea that fiat currencies lose purchasing power over time due to mounting debt, persistent deficits, loose monetary policy, and fiscal constraints.
Analysts at Swiss financial firm Syz said central banks continue to accumulate gold as part of a broader effort to diversify portfolios and reduce reliance on the US dollar. The firm's report stated: "Increased geopolitical and policy uncertainty, amplified by the recent US government shutdown, has bolstered gold's appeal as a safe-haven asset."
Tensions at the Fed and interest rate policy
One of the factors that market observers are closely watching is the escalating tensions at the Fed, as the agency's actions directly affect the performance of the US dollar.
After years of pause, the Fed cut interest rates three times in a row in 2025, each time by 25 basis points. Analysts forecast one or two more cuts in 2026.
Even more concerning is President Donald Trump's dissatisfaction with Federal Reserve Chairman Jerome Powell, whose term ends this coming May. Trump – who has continued to criticize Powell recently – is expected to appoint a close associate to the position.
Vijay Valecha, Investment Director at Century Financial in Dubai, said: "Investors' expectations of a 50 basis point easing have supported the USD in the short term as they review US policy." He added that the CME FedWatch currently shows an 84% probability that interest rates will remain unchanged this January, which helps maintain stable demand for the USD in the short term.
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Cryptocurrencies, especially stablecoins—pegged to the USD and backed by reserve assets—have the potential to support the US currency.
Analysts at BlackRock stated in their 2026 Global Outlook report that, in emerging markets, stablecoins could be used as an alternative to local currencies, expanding access to the US dollar. The report noted: "This would allow competition with bank deposits, which, if it occurs on a large scale, could significantly impact how banks provide credit to the economy as a whole."
Even Bitcoin could return to its year-highs, thanks to easier financial conditions, continued inflows into ETFs (exchange-traded funds), and a weaker US dollar, according to market experts.
Source: https://baotintuc.vn/the-gioi/dong-usd-doi-mat-nam-2026-day-song-gio-20260106153054747.htm
