Dollar looks set for its worst year since 2017

The US dollar was on the back foot on Wednesday and set for its biggest yearly fall since 2017, possibly with more to come, as investors wagered the Federal Reserve would have room to cut rates further next year even as most of its peers look finished with easing.

- 

A man walks past an electronic quotation board displaying 10-year government bonds, an index of long-term interest rates on the Tokyo bond market, and the foreign exchange rate of the US dollar against the Japanese yen in Tokyo. — AFP

(AFP)

Tuesday's solid US GDP reading failed to move the dial on the rate outlook, leaving investors pricing in roughly two more Fed cuts in 2026.

"We expect the FOMC to compromise on two more 25 bp cuts to 3-3.25 per cent but see the risks as tilted lower," said Goldman Sachs Chief US Economist David Mericle, citing slowing inflation as a reason for the forecast.

The euro and pound each nudged up to fresh three-month highs on Wednesday, though were last broadly steady on the day at $1.180 and $1.3522, respectively.

Against a basket of currencies, the dollar index fell to a 2-1/2-month low of 97.767. It was on track to lose 9.8 per cent for the year, which would mark its steepest annual drop since 2017. Any further weakness in the last week of the year would take its fall to its greatest since 2003.