US Dollar Slides Toward Worst Year Since 2017: Yen Intervention Watch and What a Weaker Greenback Means for 2026 Investors

On December 24, 2025, currency markets delivered a clear year-end verdict: the U.S. dollar is finishing 2025 on its weakest footing in years, and the implications stretch far beyond the foreign-exchange desk.

In holiday-thin trading, the greenback fell to fresh multi-month lows against key peers, while investors leaned into a growing view that the Federal Reserve has room to keep cutting rates in 2026, even as other central banks appear closer to the end of their easing cycles. At the same time, the Japanese yen remained the market’s pressure point, with traders on alert for possible intervention from Tokyo. ^[1]

The result is not just a “forex story.” A weaker dollar changes how global returns are earned—and how risk shows up—across stocks, bonds, commodities, and portfolio hedging as investors head into 2026.

Dollar heads for its steepest annual drop since 2017

By late December, the dollar had already done most of its 2025 damage.

Reuters reporting carried by Kitco showed the U.S. Dollar Index (a basket measure) sliding to a 2½‑month low around 97.767 and putting the dollar on track to fall about 9.8% for the year, its steepest annual decline since 2017. The report also noted that additional weakness into year-end could push the yearly drop toward the largest since 2003. ^[2]

Several moves underscored the scale of the shift:

Euro and pound nudged up to fresh three‑month highs, with the euro around $1.180 and sterling near $1.3522 in the Reuters snapshot. ^[3]
The euro was up just over 14% year-to-date, on track for its best annual performance since 2003, according to the same Reuters report. ^[4]

The interest-rate narrative still matters most. Markets were looking through a “solid” U.S. GDP reading and focusing instead on the forward path for policy, with investors pricing roughly two more Fed cuts in 2026. Goldman Sachs’ chief U.S. economist David Mericle told Reuters he expected the Fed to land on two additional 25‑basis‑point cuts, taking rates to 3.00%–3.25%, while arguing risks were tilted to the downside as inflation slowed. ^[5]

But 2025’s dollar slide wasn’t only about rates. Reuters also pointed to policy uncertainty and confidence shocks as part of the year’s turbulence, including the market impact of U.S. tariff policy and investor concerns about central-bank independence. ^[6]

Yen still in focus as Tokyo keeps intervention threat alive

Even with the dollar weakening broadly, traders were fixated on one specific risk: a sudden, sharp yen move triggered by intervention.

The Reuters report republished by Kitco said traders stayed on “intervention alert” as Japan’s Finance Minister Satsuki Katayama warned that Japan had a “free hand” to respond to excessive yen moves—described as Tokyo’s strongest warning to date on intervention readiness. ^[7]

In that snapshot, the dollar was down around 0.3% on the day near 155.83 yen. ^[8]

A separate Reuters report from New York added important texture: the yen strengthened modestly as market participants assessed whether officials would step in, especially as liquidity thins into holidays and year-end—a backdrop that can amplify currency moves. Reuters noted the yen had weakened even after the Bank of Japan delivered a long-anticipated rate hike the previous week, and it highlighted that the dollar had reached 157.77 yen on Friday before pulling back. ^[9]

The intervention dynamic matters because it can create “air pockets” in FX markets—moves that happen fast, across multiple asset classes. That risk tends to be highest when:

volatility is already elevated,
positioning is crowded,
and trading volumes are thin (as they were on Christmas Eve). ^[10]

December 24 market backdrop: record stocks, record metals, weaker dollar

Currency moves on December 24 didn’t happen in isolation. They arrived alongside an end-of-year market mood that was broadly supportive of risk—while also validating demand for inflation- and currency-sensitive hedges.

Reuters reported that the S&P 500 and Dow closed at record highs in a shortened Christmas Eve session. At the same time, gold and silver eased slightly from record levels, but remained near historic highs—gold just below $4,500 by the close. Reuters also noted that, for the year, gold and silver were on course for gains of roughly 70% and 150%, respectively. ^[11]

This matters for the dollar narrative in two ways:

Dollar weakness can reinforce commodity strength (since many commodities are priced in dollars and can become cheaper for non‑U.S. buyers when the dollar falls).
When investors are simultaneously buying risk assets (stocks) and hedges (gold), it often signals a market trying to balance optimism with uncertainty—exactly the environment where currency trends can persist.

Morningstar: the dollar’s weakness looks like a “turning point,” not a collapse

So what does 2025’s dollar decline mean for 2026?

Morningstar Investment Management’s 2026 Global Outlook Report frames it as a shift in regime—but not the end of dollar dominance. The report notes that the dollar weakened sharply in 2025, driven by fiscal concerns and reduced confidence in policy, yet it also emphasizes that the dollar remains overvalued relative to most global currencies. ^[12]

Morningstar adds a key distinction that many investors miss:

The evidence does not point to a “full-blown structural collapse.”
Instead, the report argues the dollar is likely entering a more prolonged phase of cyclical weakness, not a secular decline—while still retaining structural supports such as its role as the world’s dominant reserve and settlement currency and its safe-haven appeal during stress. ^[13]

TipRanks, summarizing Morningstar’s view, used similar language and highlighted the macro drivers behind the slide: U.S. debt concerns, lower interest rates, and tariff uncertainty, with Morningstar’s Hong Cheng calling the dollar’s weakness a likely turning point in its long cycle of strength—though not the end of its global dominance. ^[14]

That framing is crucial for 2026 strategy. If the dollar is in a cyclical downswing (not a one-off), then currency becomes a meaningful return driver again—after years when U.S. assets dominated global benchmarks and the strong dollar often masked diversification benefits.

What a weaker U.S. dollar means for investors in 2026 and beyond

The practical impacts of a weaker dollar depend on where you live, what you own, and whether your exposure is hedged.

1) U.S.-based investors: international assets get a tailwind

Morningstar’s report argues that for U.S.-based investors, it may be an “opportune time” to increase non‑U.S. exposure, both because many non‑U.S. markets may offer better prospective risk-adjusted returns and because foreign-currency exposure may have greater appreciation potential relative to the dollar than it did during the dollar’s long upswing. ^[15]

In plain English: if you own international stocks or bonds unhedged, a falling dollar can lift your returns even if the local-market asset doesn’t move much.

2) Non‑U.S. investors: U.S. exposure becomes harder to ignore

Morningstar also highlights that many portfolios outside the U.S. carry large implicit dollar exposure because U.S. equities dominate global indexes. The report puts the U.S. weighting in global benchmarks at around 70%, making currency decisions unavoidable for globally diversified investors. ^[16]

3) Currency hedging becomes a performance lever—costs vary widely

A major takeaway from Morningstar is that hedging isn’t a one-size-fits-all decision. The report explains that hedging can convert exchange-rate volatility into steadier returns tied largely to short-term interest rate differentials—and those differentials mean hedging costs can be dramatically different depending on your base currency. ^[17]

Morningstar’s examples are striking:

Hedging costs can be near zero for UK investors.
Hedging can cost roughly 4% per year for investors in Japan or Switzerland, where rates remain far below U.S. levels.
Investors in higher-rate markets (Morningstar cites South Africa) may even earn positive hedge returns. ^[18]

This is one of the most underappreciated “hidden variables” in global portfolio performance.

4) Gold and the yen: popular hedges, but not perfect substitutes

As the dollar weakens, investor interest often shifts toward alternative hedges—especially gold and the yen. Morningstar acknowledges both, but adds important caveats:

Gold has gained popularity as a hedge, but its lack of cash flow complicates valuation, and its volatility can make it unpredictable. ^[19]
The yen may look attractively valued versus the dollar, but Morningstar argues it’s rarely practical to swap U.S. equity exposure purely for currency reasons, and fully hedging into a third currency adds complexity and cost. ^[20]

TipRanks echoes that idea, noting Hong Cheng highlighted gold as a hedge while also flagging its volatility and valuation challenges. ^[21]

December 24’s “side stories” show how dollar weakness ripples globally

Beyond the headline dollar index move, December 24 produced several telling examples of how a weaker greenback affects regional markets:

Sterling near multi-month highs

Reuters reported sterling holding near a three-month high against the dollar, briefly touching about $1.35335. The report tied the pound’s resilience to the Bank of England’s latest rate decision and guidance, while noting thin holiday liquidity. ^[22]

India’s rupee gets breathing room

In Asia, Reuters reported India’s rupee was set to open stronger, supported by the dollar’s slide, while attention turned to forward premiums after the Reserve Bank of India announced a $10 billion dollar–rupee swap. Reuters also noted the dollar index had dipped to a more than two-month low in Asian trade around 97.75 in that context. ^[23]

These moves underscore a broader point: when the dollar weakens materially, it can relieve pressure on some emerging-market currencies, shift capital flows, and change the cost of hedging and funding.

What to watch next: the 2026 dollar map is already forming

With the dollar ending 2025 on the defensive, several signposts will determine whether the trend extends—or snaps back:

Fed rate path: Markets were pricing roughly two additional cuts in 2026, and analysts were debating how quickly the Fed can ease without reigniting inflation. ^[24]
Policy divergence: If other major central banks pause while the Fed cuts, interest-rate differentials can keep pushing the dollar lower. ^[25]
Japan intervention risk: Any renewed slide in the yen could trigger action—or at least sharper rhetoric—from Tokyo, especially in thin markets. ^[26]
Global hedging flows: Morningstar notes global investors increased hedging of U.S. exposures in 2025, reversing a long period of reduced hedging—flows that can reinforce currency trends. ^[27]
The “confidence” factor: Fiscal concerns and policy uncertainty helped drive the 2025 decline, and confidence shocks can accelerate currency moves. ^[28]

Bottom line

The U.S. dollar’s 2025 slide—tracking toward its steepest annual drop since 2017—is setting up a different investment landscape for 2026: one where currency exposure matters again as a driver of total return, not just as background noise. ^[29]

Morningstar’s core message is that this doesn’t look like the end of dollar dominance, but it may mark a turning point in the cycle—an environment where global diversification, selective hedging, and a clearer understanding of currency-linked risks could play a bigger role in portfolio outcomes than they have in recent years. ^[30]