The U.S. dollar is expected to weaken further in 2026, albeit at a slower pace than this year, according to analysts at Deutsche Bank.

Over the past one-year period, the dollar index, which measures the greenback against a basket of currency pairs, has edged lower by more than 6%.

A range of policy moves under U.S. President Donald Trump have dented the dollar throughout 2025, including the White House's sweeping tariffs, fears over the sustainability of elevated U.S. government debt levels, and worries over the independence of the Federal Reserve.

In a note, the Deutsche Bank analysts including George Saravelos and Tim Baker said a shock to the greenback from the return of President Donald Trump earlier in 2025 is "now over."

"But valuations, balance of payment dynamics and relative monetary policy cycles are supportive of further gradual dollar weakness," they wrote, predicting that the trade-weighted dollar would be 10% weaker by the end of next year.

"If these forecasts materialize, they will confirm that this decade's unusually long dollar bull cycle is over," they said.

The analysts added that the artificial intelligence boom stands out as a variable driving "two-sided risks" to the U.S. currency.

Persistent advances and a transformation of capital deepening into a sustained revival of American productivity could support the dollar through higher growth rates and capital inflows, they argued.

However, the benefits of AI may shift beyond the U.S., where much of the heavy spending on the nascent technology has stemmed from, the analysts said, noting that this may help lift global productivity as a result.

"The more negative dollar tail would involve a disorderly unwind of the current capex boom on the back of investment that proves un-economical and/or a more disorderly up-front impact on the labor market," the analyst said.

The U.S. dollar strengthened slightly on Thursday in relatively thin trading due to the Thanksgiving holiday, although the currency remained on pace for its biggest weekly decline in four months.

By 04:49 ET (09:49 GMT), the U.S. dollar index, which tracks the greenback against a basket of rival currencies, had inched up by 0.1% to 99.69.

Analysts have pointed to news reports suggesting White House economic adviser Kevin Hassett is the frontrunner to become the next Chair of the Federal Reserve, saying Hassett's bias toward aggressive interest rate reductions could weigh on the dollar.

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Source: Investing.com