(Kitco News) - The AI sector is expected to drive productivity and dominate economic activity, which should keep the U.S. economy out of recession next year, but fiscal concerns, Fed independence and global de-dollarization will sap the strength of the dollar in 2026.
“We view the U.S. economy as the engine of global economic expansion in 2026, and that leadership should stabilize the dollar's value and provide some modest appreciation by year-end,” said economists at Wells Fargo.
The bank sees the U.S. dollar index trading in a range between 98 and 102 points in 2026.
However, according to some economists, a solid U.S. economy might not be enough to support the U.S. dollar, as falling interest rates and ongoing global diversification trends could keep pressure on the currency.
The U.S. dollar index is looking to end the year down 9% and below 100 points. The weakness comes as the Federal Reserve has cut interest rates by 75 basis points in the second half of 2025. According to the CME FedWatch Tool, markets see the potential for three more cuts next year.
The U.S. dollar’s disappointing performance has been a boon to precious metals, driving gold prices up more than 65% and silver prices up more than 100% in the last 12 months.
In an interview with Kitco News, Chantelle Schieven, Head of Research at Capitalight Research, said that it is difficult to see how the U.S. dollar will hold up in a rate-cutting environment. She said that because of the government’s massive deficit, the economy can’t sustain higher interest rates.
She added that in this environment, even if economic growth remains robust, the Federal Reserve still has to ease interest rates. Schieven also noted that there is a risk a resilient economy will keep inflation pressures elevated, significantly bringing down real yields, which in turn will put pressure on the dollar.
Schieven said gold remains the most attractive monetary asset as the U.S. government moves closer to a fiscal crisis.
Market analysts at BCA Research are significantly bearish on the dollar, as they also see growing risks stemming from the U.S. government’s unsustainable debt.
“The US dollar is expensive, and eventually the US will face a fiscal reality check that will blunt US relative economic growth,” the analysts said. “We are very likely to favor short dollar positions in reaction to a non-recessionary equity market selloff, especially one centered on reduced growth expectations for AI-related stocks. We are also likely to shift away from the dollar if the odds of a US recession fall and US growth remains close to trend.”
Along with falling interest rates, some analysts see growing risks to the Federal Reserve’s political independence as another significant millstone dragging down the U.S. dollar in 2026.
Federal Reserve Chair Jerome Powell’s tenure as head of the central bank ends in May, and many are expecting President Donald Trump to appoint a new leader who will aggressively ease rates regardless of what is happening in the broader economy.
Darin Newsom, Senior Market Analyst at Barchart.com, said that a loss of credibility at the Federal Reserve would create chaos in the global economy.
“Nobody wants the U.S. dollar anymore because they can’t trust the Federal Reserve,” he said. “Instead, everyone is buying gold as a true value asset.”
Although there will be some staffing changes at the Federal Reserve, Bank of America said that there is still no guarantee there will be enough support for interest rates to go aggressively lower if economic activity remains resilient and inflation remains sticky.
“ There's speculation that there might be broader changes in Fed personnel. But to date, I will tell you that most clients that I hear from do not believe that there is a sufficient possibility of adequate turnover at the Fed to result in a clear majority to lower rates,” said Mark Cabana, Head of US Rates Strategy at Bank of America, during their 2026 outlook webinar. “We do see risks that there continues to be a push in this direction, but I don't know if they can get a clear majority of seven voters that are, uh, unambiguously aligned with lower rates.”
Looking beyond U.S. monetary policy, there are growing expectations that continued global diversification away from the U.S. dollar will also drive down the value of the world’s reserve currency.
Gold, and more recently silver, have benefited significantly from the global push away from the U.S. dollar, which started in 2022 after the U.S. government and its allies weaponized the dollar against Russia following its invasion of Ukraine.
The trend gained momentum through 2025 as the Trump administration weaponized the broader U.S. economy against both allies and adversaries, placing high trade tariffs on imports and igniting a global trade war.
Market analysts at TD Securities said they are taking a cautious stance on the U.S. dollar through 2026, as its role as a safe-haven pillar in the global economy continues to be shaken.
“We expect 2026 to be another year of a strained safe-haven outlook for the greenback,” the analysts said. “Even if we assume that investors will choose to maintain large allocations to US assets due to a lack of compelling alternatives, there's a strong incentive to raise currency hedge ratios.”
Market Analysts at RBC Capital Markets also see the U.S. dollar struggling in the new year, even if the economy remains resilient.
“U.S. exceptionalism is likely to diminish somewhat. While the U.S. economy will probably continue to grow faster than most of its developed-world peers, the growth advantage may not be as great as it has been in recent years,” said Eric Lascelles, Managing Director & Chief Economist at RBC Global Asset Management in a recent note. “Given American domestic political polarization, fiscal excesses, and more competitive posture toward both allies and rivals, the clout of the U.S. dollar and the Treasury market should decline somewhat over time.”
There is also a strong conviction in the precious metals market that central banks will continue to buy gold through 2026 to diversify away from the U.S. dollar.
Since 2022, central banks have bought roughly 1,000 tonnes of gold annually. This year, official gold reserves are expected to grow at a slightly slower pace, between 750 and 900 tonnes. Looking ahead to 2026, analysts expect central banks to maintain the pace set this past year.
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