Despite A Decline, The Dollar's Influence Persists

Economic Outlook - The U.S. dollar is under pressure due to policy uncertainty, a growing deficit, and weakening economic growth, which may extend its downtrend observed in 2025 [3][9] - Analysts predict that the de-dollarization trend will persist, potentially benefiting major G10 currency pairs like EUR/USD, CHF/USD, and CAD/USD [4] Trade Agreements - A recent trade deal between the U.S. and EU reduced tariffs from 30% to 15%, resulting in a 1.2% gain for the dollar on the announcement day, although it remains down approximately 13% for the year [5] - Despite the trade agreements, experts believe the dollar's recovery will be limited until more significant risks are addressed, such as the budget deficit and debt crisis [6] Currency Performance - The British pound's gains against the dollar are attributed more to the dollar's weakness than confidence in the UK economy, with expectations of flat trading for the pound in the coming year [10] - The Canadian dollar may strengthen if favorable tariff agreements are reached, particularly as oil prices rise [10] - The Swiss franc could benefit from its safe-haven status, while the Japanese yen faces challenges due to fiscal issues and low growth [10] Market Dynamics - The CME Group reported a 19% increase in unique FX futures and options users year-over-year, with open interest reaching a record 3.78 million contracts, valued at approximately $358 billion [7] - The FX market faces fragmentation challenges, making it difficult for investors to access reliable pricing and liquidity [8] Renminbi's Growing Influence - The renminbi is gaining traction as a global reserve currency, with its share of global SWIFT payments increasing to 3.5% in April 2025, up from 2% in 2023 [15] - Institutions are increasingly using the renminbi for cross-border trade and investment, indicating a shift in preference, especially in emerging markets [16] U.S. Economic Resilience - Despite challenges, some analysts remain optimistic about the dollar, citing steady U.S. economic growth and a strong AI sector as factors that could support the dollar's value [19] - The U.S. maintains a favorable business environment and higher benchmark rates compared to many countries, contributing to its attractiveness for investment [20]