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USD loses ground again and may remain sidelined
The US dollar is facing another round of weakness and, according to analysts, could continue its decline through 2026. Throughout this year, the greenback has shown signs of vulnerability, and the next may be no easier.
According to UBS analysts, the dollar may face further downside risks through 2026, as slowing economic growth in the US and persistent political uncertainty are creating structural headwinds for the currency.
Previously, the dollar enjoyed more favorable conditions. The US economy was outpacing its global peers, thanks to expansionary fiscal policy and strong investor confidence. This allowed the Federal Reserve to maintain a tight monetary stance while other central banks were easing. However, that backdrop has changed.
One of the driving forces behind the shift is the administration of President Donald Trump, which has aggressively moved to slash unnecessary spending. The White House intends to channel those savings into tax cuts. Against this backdrop, UBS expects US economic growth to slacken in the coming quarters, as global uncertainty may weigh on investment decisions. UBS analysts suggest that, given the unfavorable combination of slowing growth and global uncertainty, the Federal Reserve may be inclined to restart its policy easing cycle before the end of the year.
Shifts are also underway in European fiscal and monetary policy. A turning point came when Germany scrapped its so-called debt brake. UBS analysts observed that the recent shift in Germany’s fiscal policy represents the most significant expansion since reunification. When coupled with rising defense expenditures throughout Europe, they indicated this could potentially push eurozone growth beyond 1%.
As a result, the dollar may weaken further while the euro strengthens. The convergence of growth trajectories and policy stances could support a EUR/USD rally. UBS foresees the pair reaching 1.2000 by the end of June 2026.
Published 29 May 2025
© InstaFintech Group
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© InstaFintech Group
