The U.S. dollar has been falling because investors are pricing in lower interest rates, more political and policy uncertainty, and a shift away from “overweight‑U.S.” portfolios toward other currencies and regions. In 2025 the dollar dropped roughly 9–10% against major currencies, its sharpest annual fall in about eight years, and that weakness has continued into early 2026.

1. Interest‑rate cuts and “dovish” Fed expectations

A core reason is that the Federal Reserve has been cutting interest rates and is expected to keep them relatively low.

  • Lower U.S. rates reduce the yield advantage of dollar‑denominated assets, so global investors shift money into higher‑yielding or better‑performing currencies.
  • Markets are pricing in multiple rate cuts in 2026 , which tends to weigh on the dollar because investors earn less for holding it.

2. Policy uncertainty and Trump‑era politics

The return of Donald Trump to the presidency has amplified concerns about policy volatility and central‑bank independence.

  • Trump has repeatedly criticized Fed Chair Jerome Powell and pushed for looser monetary policy, which raises questions about how “independent” the Fed really is.
  • His administration’s aggressive tariff agenda , trade threats, and confrontational geopolitics have made the dollar seem riskier to some investors, especially when paired with large deficits.

3. Fiscal and structural pressures

Beyond short‑term politics, there are longer‑term structural issues dragging on the dollar.

  • The U.S. runs large fiscal and current‑account deficits , meaning the government and economy rely heavily on foreign capital to finance spending.
  • As those deficits grow, investors start to demand a higher risk premium for holding U.S. debt and dollars, which can push the currency lower over time.

4. “Sell America” and diversification abroad

Some analysts talk about a “sell America” or “de‑dollarization” trend, where global investors reduce their exposure to U.S. assets.

  • After a decade of overweighting U.S. stocks and bonds , investors are rotating into Europe, parts of Asia, and select emerging markets, which lifts those currencies versus the dollar.
  • While a full‑blown exodus from the dollar hasn’t happened yet, even hedging and gradual diversification can nudge the greenback lower.

5. How this plays out in 2026

Most major banks and strategists expect continued dollar weakness through 2026, though not necessarily a straight‑line crash.

  • The mix of more Fed cuts , persistent deficits , and geopolitical friction suggests the dollar will likely stay under pressure versus the euro, pound, yen, and some emerging‑market currencies.
  • At the same time, the U.S. still benefits from strong tech and AI‑driven investment flows , which can act as a partial floor under the dollar.

Quick‑glance table: main reasons the dollar is falling

[7][1][3] [7][1][5] [3][5] [9][3]
Factor What it means for the dollar
Lower U.S. interest rates Reduces yield appeal; money flows to higher‑return currencies.
Trump‑era policy volatility Raises political and trade‑war risk, making the dollar less “safe.”
Large U.S. deficits Increases risk premium and long‑term doubts about fiscal sustainability.
Global diversification away from U.S. assets Supports other currencies and pushes the dollar index lower.
Information gathered from public forums or data available on the internet and portrayed here.