The market is increasingly bearish. Will the strong dollar return to rationality next year? Wall Street has become bearish on the dollar's prospects as President-elect Trump's policies and the Federal Reserve's interest rate cuts are likely to put pressure on the greenback in the second half of 2025. The U.S. dollar will peak as early as the middle of next year and then begin to fall, with the ICE U.S. Dollar Index expected to fall 6% by the end of next year. The dollar has soared this year and is on track for its biggest gain since 2015 as Trump's victory in the U.S. presidential election and strong economic data prompted traders to lower their forecasts for the number of rate cuts by the Federal Reserve next year. Dollar strength 'is stomach-churning. We are driving the price of an asset to levels that are unsustainable in the long term' The U.S. dollar spot index has risen about 6.3% so far this year, with much of the gains occurring around U.S. election day in early November. The dollar's gains were driven by expectations that Trump's tariffs and tax cuts will fuel inflation and complicate the Federal Reserve's task of lowering interest rates in coming months. This provides an incentive for global investors to move funds to the United States. These threats will boost the dollar, but ultimately it will fall below current levels by this time next year. Falling U.S. real interest rates and improving risk appetite constitute the most bearish dollar scenario, they added. Trump has been increasingly hawkish on trade issues, with the Mexican peso and Canadian dollar falling recently after he promised to impose 25% tariffs on Mexican and Canadian goods over immigration and drug-related border issues. Earlier this month, Trump also blasted some emerging economies for challenging the dollar's status as the world's leading currency. All of the dollar's recent strength has led to weakness in non-dollar currencies.