SINGAPORE, Jan 2 (Reuters) – The U.S. dollar made a weak start to 2026 on Friday after struggling against most major currencies last year, while the Japanese yen steadied near a 10-month low as investors awaited economic data to gauge the direction of global interest rates.
A narrowing gap between U.S. interest rates and those in other economies weighed on the dollar in 2025, allowing most currencies to post strong gains against it — with the yen being a notable exception.
Concerns over the U.S. fiscal deficit, the risk of a global trade war, and questions surrounding the Federal Reserve’s independence also pressured the greenback, with these issues expected to persist into 2026.
The euro was steady at $1.1752 on the first trading day of the year after surging 13.5% in 2025, while sterling traded at $1.3473 following a 7.7% annual gain. Both currencies recorded their strongest yearly performances since 2017.
Markets in Japan and China were closed on Friday, resulting in light trading volumes and limited price movement.
Dwindling Dollar Dominance
The dollar index, which tracks the U.S. currency against six major peers, stood at 98.186 after falling 9.4% in 2025 — its steepest annual decline in eight years.
“We have seen the peak in dollar supremacy,” said Kyle Rodda, senior market analyst at Capital.com. However, he noted that the dollar index has not recorded two consecutive years of decline in the past two decades.
Frequently Asked Questions
Why did the U.S. dollar start 2026 on a weak note?
The dollar weakened due to a narrowing interest rate gap between the U.S. and other economies, along with concerns over the U.S. fiscal deficit, trade tensions, and Federal Reserve independence.
How did the dollar perform in 2025?
The dollar index fell 9.4% in 2025, marking its biggest annual drop in eight years.
Which major currencies benefited from the dollar’s weakness?
The euro gained 13.5% and the British pound rose 7.7% in 2025, both recording their strongest yearly gains since 2017.
Why was trading activity low at the start of 2026?
Markets in Japan and China were closed, leading to light trading volumes and limited market movement.
What does “dwindling dollar dominance” mean?
It suggests that the dollar’s long-standing strength may have peaked, as other currencies gain ground due to shifting global interest rate expectations and economic uncertainty.
