The U.S. dollar weakened and is on track to post its worst annual performance since 2017, with investors increasingly betting that the Federal Reserve will have room to continue cutting interest rates next year, even as most major central banks appear to have reached the end of their monetary easing cycles.

A strong reading of U.S. gross domestic product released on Tuesday failed to shift interest-rate expectations, reinforcing market forecasts for two additional rate cuts in 2026.

“We expect the Federal Open Market Committee to deliver two further 25-basis-point cuts, bringing the policy rate to between 3% and 3.25%,” said David Mericle, chief U.S. economist at Goldman Sachs, adding that risks remain tilted to the downside amid slowing inflation.

The dollar index fell to a two-and-a-half-month low against a basket of currencies, sliding to 97.767 points. It is now heading for an annual loss of 9.8%, which would mark its steepest yearly decline since 2017. Any further weakness in the final week of the year would push the dollar toward its largest annual drop since 2003.

The greenback has endured a turbulent year, marked by sharp volatility driven by tariffs imposed by President Donald Trump, which earlier triggered a confidence crisis in U.S. assets. Growing political pressure on the Federal Reserve has also fueled concerns over the central bank’s independence.

By contrast, the euro has gained just over 14% so far this year, putting it on course for its strongest annual performance since 2003. The European Central Bank kept interest rates unchanged last week and revised its growth and inflation forecasts upward, a move widely seen as closing the door to further near-term easing.

The euro and the British pound edged up to three-month highs before stabilizing at around $1.180 and $1.3522, respectively. Sterling has risen more than 8% since the start of the year, with investors expecting at least one rate cut by the Bank of England in the first half of 2026 and nearly a 50% chance of a second cut before year-end.

Market expectations of future tightening are now limited, based partly on outlooks in Australia and New Zealand, where the next policy move is widely seen as a rate hike. The Australian dollar has climbed 8.4% this year and touched a three-month high of $0.6710, while the New Zealand dollar reached a two-and-a-half-month high at $0.58475.

Attention has also turned to the Japanese yen, as investors watch closely for possible intervention by Japanese authorities to stem its decline. The dollar slipped 0.3% against the yen on Wednesday to 155.83, following a 0.5% drop in the previous session.

As the dollar weakened, precious metals surged.

Gold, silver, and platinum posted strong gains on Friday, driven by safe-haven demand and rising expectations of further U.S. interest-rate cuts next year. Gold rose 0.5% in spot trading to $4,502.75 an ounce by 02:25 GMT, after earlier hitting a fresh record of $4,530.60. U.S. gold futures for February delivery climbed 0.7% to a new all-time high of $4,533.60 an ounce.

Silver jumped 3.4% to $74.35 an ounce before reaching a record peak of $75.14.

The dollar hovered near a two-month low, reinforcing momentum in metals markets. Gold has delivered a standout performance in 2025, rising 72% so far and repeatedly breaking price records. The rally has been fueled by U.S. rate cuts, expectations of further monetary easing, geopolitical uncertainty, strong central-bank demand as countries seek to reduce exposure to U.S. assets and the dollar, and rising holdings in exchange-traded funds.

Silver has outpaced gold, surging 158% since the start of the year, driven by tight inventories, its inclusion on the U.S. critical minerals list, and robust industrial demand.

At the macro level, the FedWatch tool shows traders still expecting two U.S. rate cuts next year. Non-yielding assets such as gold typically benefit in lower-rate environments.

Platinum climbed 8% to a record $2,413.62 an ounce by 03:04 GMT, while palladium rose 4.4% to $1,757.25 an ounce.