End of the Fed’s QT: What Impact on the US Dollar?Since Monday, December 1, 2025, the quantitative tightening (QT) program initiated in 2022 has been halted. The evolution of the Federal Reserve’s balance sheet has always had a major impact on financial assets, particularly in the FX market. Through which mechanisms? And what impact should we expect on FX and the US dollar?
Since Monday, December 1, 2025, the US Federal Reserve (Fed) has officially ended the quantitative tightening cycle initiated in 2022. This decision marks an important turning point in US monetary policy: the balance sheet contraction— which had tightened financial conditions for more than three years—has now come to an end. Historically, changes in the Fed’s balance sheet exert a significant influence on financial markets, particularly on the US dollar index (DXY). However, the end of QT does not carry the same meaning as the start of a quantitative easing (QE) program.
Stopping balance sheet reduction means the Fed no longer withdraws liquidity from the financial system. In theory, this is neutral to slightly bearish for the dollar. With less pressure on real interest rates, the relative attractiveness of the dollar diminishes, especially against currencies with higher carry. Historically, in periods when QT ended—such as in 2012 or 2019—the dollar tended to weaken gradually. Simply stabilizing the balance sheet slightly loosens financial conditions, encouraging a rotation toward riskier or higher-yielding assets outside the US.
However, it is essential to emphasize a point that is often misunderstood: the end of QT is absolutely not equivalent to the beginning of QE. In QE, the Fed purchases large quantities of bonds, injecting significant and continuous liquidity into the economy. These purchases put direct downward pressure on long-term yields and weaken the dollar more clearly. Conversely, when QT stops, the Fed essentially does nothing: it no longer withdraws liquidity, but it does not add any either. The balance sheet stabilizes—sometimes with slight fluctuations—but it does not automatically expand again.
The distinction is therefore crucial:
• End of QT = stabilization, moderate impact, often neutral to slightly bearish for the USD.
• Start of QE = balance-sheet expansion, clearly bearish impact as the supply of dollars increases.
In summary, the end of QT in December 2025 may contribute to a slightly less supportive environment for the dollar, but its impact remains limited in the absence of signals pointing to a real shift toward QE. The next few months will therefore depend more on policy rates, inflation trends, and monetary-policy expectations than on the QT halt alone.
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