The dollar is approaching its worst year since 2017. Why is the market betting against it?

Bloomberg Dollar Spot index, which shows the dynamics of the dollar against major world currencies, has lost about 8% since the beginning of the year. On December 23, it fell to its lowest levels since early October. This indicates that 2025 could be the worst year for the U.S. currency since 2017, Bloomberg points out. Signals from the options market also indicate that pressure on the dollar could persist in the last trading sessions of 2025 and beyond, the agency notes.

The dollar may end the year with the worst result for the last eight years - since 2017, Bloomberg writes. Since the beginning of 2025, the Bloomberg Dollar Spot index, which reflects the dynamics of the U.S. dollar against a basket of key world currencies, has lost about 8%, and on December 23 at the moment fell by another 0.4%, falling to the lowest levels since early October. Later on December 23, the fall of Bloomberg Dollar Spot was partially recouped after the release of statistics indicating the acceleration of growth of the U.S. economy in the third quarter of 2025, emphasizes the agency. Real GDP for this period increased by 4.3% in annualized terms, which exceeded analysts' expectations.

However, despite these indicators, Bloomberg notes, the options market is signaling that traders are betting on further weakening of the U.S. currency in the last trading sessions of 2025. The trend, the agency points out, could continue further. The risk reversals market sentiment indicator indicates that options traders are the most pessimistic about the dollar over the past three months. The main vehicles for expressing these pessimistic views on the dollar in recent trading sessions have been the euro and the Australian dollar, data from the U.S. Depository Trust & Clearing Corporation (DTCC) shows.

The dollar is pressured by expectations of further interest rate cuts by the Federal Reserve, while many other major central banks are close to the end of easing cycles, Bloomberg writes . An additional negative factor is seasonality: in December, the U.S. currency is traditionally weaker. Over the last month, the dollar has already lost more than 1%.

Pessimistic moods are also reflected in the statistics of the US Commodity Futures Trading Commission (CFTC). According to the latest data of the regulator, in the week before December 16 speculative traders switched to betting against the dollar, taking a "bearish" position on the U.S. currency for the first time since October, the agency points out.

"In 2026, I expect the downtrend in the dollar to continue, but in a softer and more subdued format," says Paresh Upadhyaya of Pioneer Investments. He says the main risk to such a scenario remains the return of "exceptional" growth in the US economy. "And the latest GDP growth data for the last quarter points to this risk," the expert added.

"The outlook for the dollar remains quite negative," Ipek Ozkardeskaya, senior analyst at Swissquote, wrote in a note published Dec. 23. Bullish bets on the U.S. currency are now extremely rare, she said. She also noted that concerns about fiscal discipline and trade tensions continue to weigh on the dollar.

However, the analyst warned that the U.S. currency is "vulnerable" to a sharp rebound should upcoming macroeconomic data cause the market to revise expectations for Federal Reserve policy in a more hawkish direction.

"The combination of economic growth and policies favorable to stocks and bonds is exactly what plays against the dollar," Markets Live macro strategist Christine Aquino noted. - The U.S. currency tends to perform best either during periods of sharp investor risk aversion or when the U.S. economy is clearly exceptional. This configuration of factors will continue to put pressure on the dollar, especially if the U.S. economy continues to develop in a moderate growth mode," he added.

This article was AI-translated and verified by a human editor