Another grim year ahead for the USD?

The USD opened 2026 with a modest rebound, doing little to repair the damage from last year. The USD index edged up 0.24% on Friday to 98.48, after closing out 2025 with a 9.5% drop — its steepest annual decline since 2017, Reuters reports.

The slide was driven by mounting unease over President Donald Trump’s trade war, surging US debt, and concerns about the independence of the Federal Reserve. “This has been one of the worst years for USD performance in the history of freefloating exchange rates,” Deutsche Bank’s George Saravelos told the Financial Times.

A rebound from a deep hole: The USD hit its low point in September, down 15% against major currencies after Trump launched his sweeping April tariffs. It has since rebounded by 2.5%, as US recession fears eased, though the recovery has been capped by the Fed’s resumption of interest rate cuts, which kept the currency under pressure.

AI saves the day — for now: Capital inflows into US equities tied to the AI boom have provided short-term support, with further investments expected this year — keeping US growth ahead of Europe’s. The reopening of the US government and the impact of recently passed tax cuts could give growth — and the USD — a lift in 1Q, according to Brandywine Global. However, that boost is likely to fade later in the year.

… but the future still looks grim: Markets expect the Fed to deliver two or three quarter-point rate cuts in 2026, while other central banks are expected to hold or tighten policy. The Fed will introduce three rate cuts in 1H 2026, Moody’s Analytics’ Chief Economist Mark Zandi told CNBC, citing a weakening labor market, political pressure, and inflation uncertainty. FX strategists continue to forecast a weaker USD through the year, according to a Reuters survey.

Germany’s fiscal stimulus, policy support in China, and improving eurozone growth are expected to narrow the US growth premium. “When the rest of the world is starting to look better in terms of growth, that’s favorable for the [USD] to continue to weaken,” Amundi’s Paresh Upadhyaya told Reuters.

A pivotal month ahead: Markets are closely watching Trump’s choice for the next Fed chair, expected this month, ahead of Jerome Powell’s term ending in May. Powell has been under fire from Trump for not cutting rates more aggressively, but a successor more receptive to White House pressure could weigh further on the currency. Short-term direction will also hinge on a heavy run of US data next week, including Friday’s payrolls report.

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THE CLOSING BELL-

The EGX30 rose 0.3% at Wednesday’s close on turnover of EGP 6.7 bn (22.9% above the 90-day average). International investors were the sole net sellers. The index is up 40.7% YTD.

In the green: Misr Cement (+8.0%), Egypt Aluminum (+3.8%), and Raya Holding (+3.3%).

In the red: Beltone Holding (-3.1%), Oriental Weavers (-1.7%), and Credit Agricole (-0.8%).

CORPORATE ACTIONS-

Domty shareholders approve demerger: The extraordinary general assembly of dairy giant Domty approved a decision to split the firm into two entities based on its book value at the end of 2024, according to an EGX disclosure (pdf). Under the move, Domty will be the demerging company with EGP 113 mn in capital, while a new firm — Dairy Products Euro Arabian for Food Industries — will be created with an issued and paid-in capital of EGP 438 mn.

The split will see total shareholders’ equity of EGP 1.2 bn divided between the two companies, with EGP 246.1 mn allocated to the demerging company and the rest to the new entity. Both companies are set to remain listed on the EGX.