The U.S. dollar is poised for its steepest annual decline since 2017, pressured by expectations of Federal Reserve rate cuts and uncertainty over who will lead the central bank next year, Bloomberg reported.

The Bloomberg Dollar Spot Index has lost about 8 percent so far in 2025, dragged down initially by Donald Trump’s “Liberation Day” tariffs in April and sustained concerns about U.S. economic policy and leadership at the Fed. Traders are now weighing the implications of the Fed’s next chair, whose identity could determine the pace of interest-rate reductions in 2026.

Market sentiment contrasts sharply with global peers. The euro has strengthened against the dollar as inflation remains muted in the eurozone and upcoming defense spending curbs speculation of rate cuts. In Canada, Sweden, and Australia, investors are pricing in potential hikes, underscoring a divergence from the U.S. policy trajectory, Bloomberg noted.

Short-term data have provided mixed signals. U.S. jobless claims recently fell to one of the year’s lowest levels, briefly lifting the dollar, yet broader positioning continues to favor a weaker greenback. Commodity Futures Trading Commission data show that bullish bets earlier this month quickly reverted to the pessimistic stance dominating markets since the April tariffs.

Speculation over Fed leadership is at the forefront of investor concerns. National Economic Council Director Kevin Hassett is widely regarded as the frontrunner, while former Fed governor Kevin Warsh, governors Christopher Waller and Michelle Bowman, and BlackRock’s Rick Rieder remain contenders. Analysts and traders caution that the chosen chair could shift expectations for rate cuts, influencing dollar strength. Andrew Hazlett of Monex Inc. told Bloomberg that while Hassett is largely priced in, candidates like Warsh or Waller might maintain a less aggressive cutting stance, which could support the currency.

With at least two rate reductions already priced into markets for next year, investors say the dollar’s path will remain closely tied to Fed policy decisions and the uncertainty surrounding its leadership.