Can the US dollar's decline last until the end of the year? The three main drivers behind the euro reaching a four-year high

The US Dollar Index has entered a recession mode. It has fallen for nine consecutive days since December, with the latest quote at 99.24. The euro against the US dollar has also risen to 1.1637, signaling a new flow in the market. Interestingly, historical data reveals a pattern—over the past ten years, the US dollar has declined in 80% of December, with an average drop of about 0.91%, making it the weakest month of the year.

The Fed Rate Cut Wave Accelerates

The direct reason for the dollar’s pressure is clear: rising expectations of rate cuts. According to CME FedWatch Tool, the market currently assigns an 89.2% probability that the Federal Reserve will cut interest rates by 25 basis points again in December, with two more cuts expected in 2026. This expectation gap leaves no room for the dollar to breathe, and it continues to be suppressed by bears.

Triple Impact Likely to Continue

More worth noting are the “variables.” Standard Bank’s G10 Strategy Team points out that three forces may jointly hit the dollar:

First, the Bank of Japan’s interest rate hike outlook. The latest data shows that the market now expects an 80% chance that the Bank of Japan will raise interest rates in December. As the yen appreciates, assets priced in dollars become less attractive.

Second, the leadership change at the Federal Reserve. Reports suggest that the US President may nominate Chief Economic Advisor Haskett to become the Fed Chair. This official is viewed by the market as a more dovish decision-maker. Van Luu, Head of Global FX at Russell Investments, bluntly states: Under his leadership, the dollar will only weaken further.

Third, uncertainty in trade policies. The potential impact of tariffs is still brewing.

How Difficult Is It for the Euro to Break New Highs?

Based on the above factors, analysts generally remain bullish on the euro against the dollar. Russell Investments believes EUR/USD could break through this year’s high of about 1.19, reaching a four-year high. Deutsche Bank macro strategist Tim Baker further predicts that the US dollar index still has about 2% downside potential, possibly returning to the lows of the third quarter.

For Taiwanese investors, a strengthening euro directly reflects on the exchange rate. As the dollar weakens relative to other currencies, the question of how much euro to TWD will also fluctuate—the euro appreciates, and the price in TWD naturally rises.

Although many analysts believe this downward trend may accelerate during the year-end rally or officially start in early 2026, the trend has already taken shape. The dollar’s weakness cycle is quietly rewriting the foreign exchange map.