The greenback soared to a three-year high of 102.99 against a basket of currencies in March, before ending the year at 89.96, down 6.77% on the year and 12.65% from its March high.
An improving global economic outlook as COVID-19 vaccines are rolled out, rock-bottom U.S. interest rates and ongoing Fed bond purchases have dented the dollar's appeal.
Expectations of additional fiscal stimulus and rising fiscal and current account deficits are additional headwinds that are likely to hurt the U.S. currency over the coming year.
"I expect the dollar to depreciate further over the next few years as the Fed keeps rates at zero whilst maintaining its bloated balance sheet," Kevin Boscher, chief investment officer at asset manager Ravenscroft, told clients.
"The magnitude of the twin deficits dwarfs any other major economy," he said.
The euro ended at $1.2215, up 8.97% on the year. It reached $1.2310 on Wednesday, the highest since April 2018, but pared gains as investors squared positions for the year.
The Aussie and kiwi both hit their highest levels since April 2018 on Thursday with the Aussie surging as high as $0.7743 and the New Zealand dollar reaching $0.7241. They pared gains but ended up 9.76% and 6.82% this year, respectively.
The dollar slipped 4.90% this year against the Japanese currency to 103.25 yen. It is holding just above a nine-month low of 102.86 yen reached on Dec. 17.
The greenback also lost 12.09% to the Swedish crown, ending at 8.2176.
Bitcoin blasted to a record high of $29,300 on Thursday, taking the yearly gain for the world's most popular cryptocurrency past 300%.
U.S. Senate leader Mitch McConnell dealt a likely death blow on Wednesday to Republican President Donald Trump's bid to boost coronavirus aid to Americans, declining to schedule a swift Senate vote on a bill to raise relief checks to $2,000 from $600.
However, Democratic President-elect Joe Biden, who takes office next month, is expected to push for more measures to support the U.S. economy.
Data on Thursday showed that the number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week but remain elevated more than nine months.
Investors are also watching runoff elections in Georgia for two Senate seats next Tuesday that will determine which party controls the Senate. If the Republicans win one or both of the Georgia seats, they will retain a slim majority in the chamber and can block Biden's legislative goals and judicial nominees.
Sterling got a boost after Britain's markets watchdog intervened hours before the country leaves the European Union's single market on Thursday with a partial climbdown on curbs that risked disrupting swaps trades worth billions of euros.
The pound ended up 2.98% at $1.3656 after a year full of Brexit drama. It reached $1.3686 earlier on Thursday, the highest since May 2018.
The greenback fell 1.79% this year against the Canadian dollar, ending at 1.2755 Canadian dollars. The loonie's recent rise has lagged other currencies as oil prices waver.
"The lack of direction in oil prices over that last 10 days or so has rendered the Canadian dollar the underperformer of the dollar bloc pack," analysts at Action Economics said in a report on Thursday. Oil is a major Canadian export.
(Additional reporting by Sujata Rao in London; Editing by Angus MacSwan and Jonathan Oatis)
By Karen Brettell