The dollar index was poised for a 9.6% annual drop, its sharpest decline in eight years

The U.S. dollar was steady on Tuesday ahead of the central bank’s release of its December minutes report, which is expected to reveal divisions inside the bank about next year’s policy pathway.

Currency markets were mostly steady due to holiday-thinned liquidity as traders looked ahead after a dismal year for the U.S. dollar helped push the euro and sterling to their strongest levels since 2017.

The dollar index, which measures the U.S. currency against rivals, was poised for a 9.6% annual drop, its sharpest decline in eight years due to the central bank rate-cut bets, shrinking interest rate differentials against other currencies and worries about fiscal deficits and political uncertainty. The index was at 98.033 in early trading, not far from a three-month low.

Investor focus this week will be on the central bank minutes after the bank cut rates earlier this month but cautioned that they could remain on hold in the near term. For next year, policymakers are split about where rates should go.

Traders are pricing in two more cuts for 2026, suggesting the dollar has room to decline further.

MUFG strategists expect the dollar index to drop by 5% next year, noting the dollar is likely to be driven primarily by the U.S. economy and the direction of monetary policy.

We see the FOMC cutting rates on three occasions next year – once per quarter through to Q3. The level of the bar for rate cuts next year doesn’t look that different to this year, they said in a note.