US Dollar Shifts Amid Fed Policy Changes and Central Bank Diversification

A new ABN AMRO analysis notes that the Federal Reserve has adopted a more cautious stance in 2026, weighing lingering inflation against a cooling labour market. Policymakers are signalling a possible pause or gradual easing later in the year, which has already introduced volatility to the greenback against the euro and Japanese yen. The report projects that a weaker jobs report could accelerate expectations of rate cuts, prompting a modest weakening of the dollar over the next six to twelve months, while resilient data might keep the currency steadier.

At the same time, central banks worldwide are reshaping their reserve holdings. The share of U.S. dollars in global foreign‑exchange reserves has slipped from above 70 % in 2000 to the high‑50s today. Diversification is occurring across three vectors: a surge in gold holdings—now about 27 % of official reserves and overtaking U.S. Treasuries at roughly 22 %—increased allocations to non‑traditional currencies such as the Canadian, Australian and Chinese renminbi, and a gradual reduction in foreign ownership of U.S. Treasury debt. The move aims to lower concentration risk and improve resilience to sanctions and domestic policy shocks, while the dollar remains the dominant reserve currency.