The U.S. dollar strengthened on Wednesday, recovering earlier losses after a stronger-than-expected labor market report. Despite the rebound, the greenback remained on track for its steepest annual decline since 2017, following a year marked by interest rate cuts, fiscal concerns, and volatile trade policy under U.S. President Donald Trump.
Those same factors are expected to influence markets again in 2026, raising expectations that dollar weakness could persist. The trend has already supported gains in major peers such as the euro and the British pound, both of which posted strong performances this year.
The U.S. Labor Department reported that weekly initial jobless claims fell by 16,000 to a seasonally adjusted 199,000, the lowest level in a month and well below the 220,000 forecast from economists surveyed by Reuters.
Brian Jacobsen, chief economist at Annex Wealth Management, said claims data can be volatile, especially around holidays, but remain one of the most reliable indicators of labor market health. He added that improving employment conditions could allow the Federal Reserve to keep policy on hold for longer than previously expected.
The dollar index, which tracks the U.S. currency against a basket of major peers, rose 0.27% to 98.50. The euro slipped 0.21% to $1.1721 but remained up more than 13% for the year. Sterling fell 0.45% to $1.3401, though it still posted annual gains of over 7% against the dollar.
Concerns over the Federal Reserve’s independence have also weighed on the dollar. President Trump has repeatedly called for aggressive rate cuts and said he plans to name a successor to Fed Chair Jerome Powell in January, ahead of Powell’s term ending in May. At the same time, some incoming voting members have expressed skepticism about further easing.
Minutes from the Fed’s December 9–10 meeting showed policymakers agreed to cut rates only after extensive debate over economic risks. Updated projections now point to just one rate cut next year, while the Fed’s policy statement suggested rates are likely to remain unchanged until clearer signals emerge from inflation or employment data. Markets are currently pricing in roughly 50 basis points of easing in 2026.
This outlook has led many on Wall Street to anticipate continued dollar softness next year. However, Kit Juckes, chief FX strategist at Société Générale, believes the final phase of the dollar’s downturn may already be underway.
Elsewhere in currency markets, the Swiss franc rose 14% in 2025, while Sweden’s krona surged 20%. The Japanese yen was one of the few major currencies that failed to benefit from dollar weakness, remaining broadly flat despite two rate hikes by the Bank of Japan earlier this year.
On Wednesday, the yen weakened 0.34% to 156.96 per dollar, staying close to levels that previously triggered official warnings from Tokyo and renewed speculation about possible intervention.
In digital asset markets, Bitcoin slipped 0.21% to $88,021.45 and was down more than 6% for the year, on course for its first annual decline since 2022.
