Market News

The Bloomberg Dollar Spot Index fell as much as 0.4% on Tuesday to the lowest level since early October before trimming its loss after a report showed US economic growth accelerated last quarter. The greenback index is down about 8% this year, putting it on track for its worst year since 2017, and the options market points to further declines in the coming months.

“My outlook outlook for 2026 is more continuation of the bear market, but a more modest one,” said Paresh Upadhyaya at Pioneer Investments. “The key risk to this view is US growth exceptionalism returning and today’s third quarter GDP highlights this risk.”

Expectations that Federal Reserve will lower borrowing costs further while many other major central banks are close to being done wth their easing cycles have weighed on the greenback. A pattern of losses in December is also working against the US currency, which is down more than 1% this month.

The pessimistic bias is showing up in Commodity Futures Trading Commission data. Speculative traders flipped to betting against the dollar in the week through Dec. 16, the latest CFTC figures show. They turned bearish on the US currency for the first time since October.

Options pricing has also turned more negative. So-called risk reversals, which depict market positioning and sentiment, show that options traders are the most bearish on the dollar in three months. Data from the Depository Trust & Clearing Corporation shows that the euro and the Australian dollar have been the main vehicles for expressing those bearish dollar views in recent sessions.

“The dollar outlook remains comfortably negative,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote, in a note published Tuesday. “Bullish calls on the dollar are rare.”

Ozkardeskaya said that concerns around fiscal discipline and trade tensions are also acting as headwinds. Still, she warned the dollar is vulnerable to a sharp rebound if upcoming data releases prompt a hawkish reassessment of Fed expectations.

The US economy expanded in the third quarter at the fastest pace in two years, bolstered in part by resilient consumer and business spending, a Bureau of Economic Analysis report showed Tuesday. Inflation-adjusted gross domestic product increased at a 4.3% annualized pace, which was higher than all but one forecast in a Bloomberg survey and followed 3.8% growth in the prior period.

What Bloomberg Strategists say...

“A growth and policy mix that’s just right for stocks and bonds is the exact opposite of what the dollar needs, as the currency tends to perform best during extreme periods of either risk aversion or US exceptionalism. Such an outlook will weigh on greenback moving forward, especially if the US economy continues on a path of moderate growth.”

—Kristine Aquino, Macro Strategist, Markets Live. For the full analysis, click here.

Separately, Canada’s economy grew in November after a drop in October. The Canadian dollar jumped after the report to reach the strongest level since July against the greenback.

The Swedish krona, the best performer among Group-of-10 peers this year, rose to the strongest level since February 2022 on Tuesday.

(Updates with futures positioning data in fifth paragraph.)