The US dollar index faces pressure, will the euro become the big winner?

The euro has recently shown strength against the US dollar. Behind the consecutive days of gains, it reflects subtle changes in the future trend of the dollar. According to statistical data, in the past 10 years, the US dollar index has declined in 80% of December years, with an average decline of 0.91%, making December the least favorable month for the dollar throughout the year.

The Deep Reasons Behind the Current Pressure on the US Dollar

Changes in market expectations are the key drivers of the dollar’s softening. According to the latest data from the CME FedWatch Tool, the probability of the Federal Reserve cutting interest rates by 25 bps in December is 89.2%, and two more rate cuts are expected in 2026. This dovish monetary policy expectation directly weakens the attractiveness of the dollar.

As of December 3, the US dollar index was at 99.24, down for the ninth consecutive trading day, with a decline of 0.08%. Meanwhile, the EUR/USD also showed an upward trend, trading at 1.1637 at the time of press, rising for eight consecutive days.

Three Forces Will Determine the Future Direction of the US Dollar

Industry insiders point out that there are three main factors influencing the future trend of the dollar. First is the policy direction of the Bank of Japan, with the latest expectations showing an 80% chance of a rate hike in December. Second is the change in leadership at the Federal Reserve—reports suggest that US President Trump may suggest appointing Chief Economic Advisor Haskett as the Fed Chair. The third is the uncertainty surrounding tariff policies.

Standard Bank G10 Strategy Head Steven Barrow noted that the combination of a rate hike by the Bank of Japan, the new Fed Chair candidate, and unfavorable tariff factors will pose significant challenges to the dollar.

How Do Experts View the Euro Opportunity?

Van Luu, Head of Global Forex at Russell Investments, stated that if Haskett leads the Fed, policy could tilt dovishly, further weakening the dollar. In this scenario, the EUR/USD could break through this year’s high of about 1.19, reaching a four-year high.

Deutsche Bank macro strategist Tim Baker believes that the dollar is likely to retreat to the lows near the third quarter, which means the US dollar index could fall by about 2%. “Even if these changes are not completed within the remaining time of this year, they will inevitably become evident in early 2026.”

Overall, with multiple factors stacking up, the dollar faces a test, while the EUR/USD is expected to continue its strong performance.