Why the US dollar is under pressure in 2026?

23/01/2026 02:29 AST

As we move into early 2026, the US dollar is facing growing challenges. Its recent weakness isn't just part of a normal economic cycle, but it reflects rising political uncertainty and shifting global confidence in the United States.

Markets have become more reactive to political signals coming from Washington, especially tough talk on trade, tariffs, and the use of financial tools as political leverage. These actions are making investors nervous. While some dismiss the idea of a "Sell America" trend as exaggerated, the evidence points to a deeper change in how global investors think about risk.

Large institutional investors are no longer assuming the US is the only safe place to park money. The old "TINA" mindset (There Is No Alternative) is fading. Instead, investors are spreading risk across assets like gold, the euro, and new financial systems being developed by BRICS+ countries to reduce exposure to US political swings.

US Treasury markets are also flashing warning signs. Even though the Federal Reserve has been cutting rates, with benchmark rates now around 3.25%-3.5%, bond yields suggest investors are still worried about inflation coming back. Adding to the uncertainty is the upcoming change in Fed leadership when Jerome Powell's term ends in May 2026. Markets are questioning whether future leadership will remain independent and committed to keeping inflation under control.

Looking ahead, the dollar's outlook remains uncertain. If the US keeps spending aggressively while maintaining loose monetary policy, downward pressure on the dollar is likely to continue. At the same time, new global payment systems are reducing the world's reliance on the dollar, pushing the financial system toward a more multipolar structure.

For the rest of 2026, the strength of the dollar will depend less on interest rates and more on whether the US can restore trust through stable institutions, predictable policies, and calmer international relations.

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