Yeliz Akmaca 
The US dollar, having closed 2025 with its weakest performance in 22 years, started 2026 on a low note. In global markets, the influence of the greenback on power dynamics is waning, while investors are taking cautious positions amid potential Fed rate policies and international developments.
The US currency, measured against six other units by the Dollar Index (DXY), fell by 9.4% in 2025, marking its largest annual decline in eight years, and remained at 98.186. Markets have already priced in expectations that the Fed may start aggressive rate cuts.
Euro and Sterling Performance
The euro traded at $1.1752 on the first day of the year, while sterling reached $1.3473. Both currencies recorded their steepest annual gains since 2017. Global investors are shifting toward European currencies as the US currency weakens.
Reports from UBS and Morningstar suggest that the “American exceptionalism” theme may weaken. Signs of recovery in Europe and Japan make the euro and yen more attractive to investors compared to the US currency. ECB’s slower rate cuts relative to the Fed and the BoJ signaling an exit from ultra-loose policies are expected to increase downward pressure on the US currency.
The policy gap between the US Fed and the Bank of England (BoE) will drive GBP/USD in 2026. The Fed has cut rates to 3.50-3.75%, with markets expecting a further drop toward 3.00% in the first half, weakening dollar yield support. The BoE is likely to ease gradually from 3.75-4.00% to 3.00-3.25%, possibly 2.75% if UK growth slows. This favors GBP/USD gains early in the year, but faster BoE cuts could reduce the advantage. Market forecasts range 1.30-1.47, centering around 1.36-1.40, indicating no one-way trend.
Silver gained 171.5% year-to-date, reaching $83 per ounce. This performance made silver the best-performing precious metal of 2025 and drew investors’ attention.
Yen Follows a Different Path
The Japanese yen gained just around 1% against the US currency in 2025 and hovered near a 10-month low. BOJ rate hikes had limited impact, and investors unwound long yen positions. The government’s expansionary fiscal policy is still considered a risk to the economy in 2026.
Emerging Markets and Commodity Opportunities
A weaker US currency creates opportunities for emerging markets. Markets like Turkey may become more attractive to investors due to local currency appreciation and inflows of foreign capital. Similarly, commodities such as gold, silver, and oil benefit from a weaker greenback, becoming cheaper for international buyers and potentially triggering a new rally.
The weak US currency presents both opportunities and risks globally; investors are closely watching the Fed and other central banks’ next moves.
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