U.S. Dollar Decline: Why the Greenback is Losing Ground Despite Economic Strength

Despite a seemingly robust U.S. Economy – with 4.4% GDP growth in the third quarter of 2025 and a stock market up nearly 12% over the last year – the U.S. Dollar has been on a downward trend. The dollar is down 9.4% over the last 12 months and nearly 10% for 2025 against a basket of foreign currencies, a trend that began in 2022.

Dollar Weakness Against Major Currencies

The dollar’s decline isn’t limited to broad currency baskets. It has lost 8% of its value against the British pound in the last year, despite the U.K.’s comparatively anemic economic growth of 1.3%. Against the euro, the dollar has fallen nearly 12% over the past 12 months, with one dollar now buying only 84 cents in Paris.

European Markets Outperform U.S. Equities

Equity markets reflect this sentiment. The Stoxx Europe 600 is up nearly 4% year-to-date, while the S&P 500 is down 0.14% as of February 16, 2026.

Factors Contributing to the Dollar’s Decline

Analysts at ING point to a “Sell America” trade driven by several headwinds despite the U.S. Economy’s technical strength. These include rising unemployment and weakening hiring data. Economists anticipate potential downward revisions to the January job creation numbers, suggesting the initial report may have been a statistical anomaly.

Federal Reserve Policy Expectations

The Federal Reserve’s dual mandate includes supporting the labor market. Weak job numbers could prompt the Fed to implement further monetary easing. While the Fed held interest rates steady at 3.5% in January, most Wall Street analysts expect at least two rate cuts in 2026. The prospect of lower returns on dollar-denominated assets is driving investors away.

Loss of Safe-Haven Status

According to ING analyst Francesco Pesole, the dollar has lost a significant portion of its appeal as a safe-haven asset. The recent improvement in U.S. Macroeconomic indicators hasn’t been enough to restore confidence in the greenback, echoing a similar pattern observed in the summer of 2025.

Market Snapshot (February 16, 2026)

• U.S. Markets are closed for a national holiday. The S&P 500 closed flat at 6,836.17 in its last session.
• STOXX Europe 600: Up 0.33% in early trading.
• U.K.’s FTSE 100: Up 0.22% in early trading.
• Japan’s Nikkei 225: Down 0.24%.
• China’s CSI 300: Closed for Chinese Latest Year.
• South Korea KOSPI: Closed for Chinese New Year.
• India’s NIFTY 50: Up 0.83%.
• Bitcoin: Rose to $68.9K.

Source: U.S. Bureau of Economic Analysis, Worldometer