The US dollar is heading for its steepest weekly decline in seven months as volatile US-Europe relations and rising policy uncertainty pressure the currency.
The dollar index, which tracks the US currency against a basket of six peers, slipped to 97.8. The gauge is heading for a weekly loss exceeding 1%, the largest since June.
Analysts point to uncertainty around policy decisions by President Donald Trump, including his recent pullback from tariff threats targeting European nations. The reversals have added to concerns over the durability of US trade and economic strategy, undermining confidence in the greenback.
The latest slide extends a difficult stretch for the dollar. In 2025, the currency fell 9.4%, its worst annual performance in eight years, as investors reassessed US growth and policy direction.
Pressure is also building from interest rate convergence between the US and other major economies. Traders are now pricing in two interest rate cuts from the Federal Reserve in 2026, compared with the single cut projected by Fed policymakers, narrowing yield differentials that have supported the dollar in recent years.
Historical analysis suggests the dollar could weaken further in 2026, with models pointing to an additional decline of as much as 8% if current trends persist.