The year 2025 delivered significant volatility spikes for the US Dollar Index (DXY).

A prime example is the April shock linked to the so-called “Liberation Day tariffs”, which marked the most powerful blow to the US dollar on an annual basis. The introduction by Trump of new aggressive tariffs (including a universal 10% tariff) was perceived by the market not as protectionism, but as a threat of a global trade war and economic isolation. As a result, DXY plunged by approximately 2% in a single day and continued to decline over the following months.

Equally important was the shift in the Federal Reserve’s policy stance and the launch of an interest rate cutting cycle. During the first half of 2025, the policy rate was held at 4.5%, but starting in September it was reduced three times, reaching 3.75%.

What Could Happen to DXY in 2026?

In May, the Federal Reserve is likely to appoint a new Chair who would be more aligned with Trump’s preference for accommodative monetary policy. As a result, market participants are pricing in further rate cuts towards approximately 3.00%, while the European Central Bank and the Bank of England may act more cautiously. This divergence in central bank policies is unfavourable for the US dollar.

Analysts at Morgan Stanley, ING and MUFG are expressing bearish forecasts for 2026. In their view, the 2025 low is likely to be broken.

In the final days of 2025, the US Dollar Index (DXY) continues to trend lower (marked in red), with the following technical signals in focus:
→ attempts to break above the August high resemble two bull traps;
→ in December, the 98.78 level shifted from support to resistance.

Taking the above into account, we could assume that the current descending channel will remain a key guiding structure at the beginning of 2026.

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