"The US dollar is expected to fall by 9%" - Morgan Stanley predicts the euro will strengthen against the US currency in 2026
The US dollar will fall to levels recorded during the Covid pandemic in mid-2026, hit by interest rate cuts and slowing growth, according to forecasts from Morgan Stanley.
The US dollar index will fall about 9 percent by this time in 2026, strategists predicted. That would exacerbate the US dollar's recent decline as trade tensions weigh on the US currency.
"We believe that rates and currency markets have entered significant trends that will continue, driving the US dollar much lower, after two years of trading in wide ranges," they explained.
The Morgan Stanley report joins many economic analysts questioning the outlook for the dollar as traders weigh U.S. President Donald Trump's dovish approach.
The US dollar index has fallen by nearly 10% since its February peak, as Trump's trade policies negatively impact US assets, calling into question the dollar's central role in the global economy.
The biggest winners from the dollar's weakness will be the euro, yen and Swiss franc, which are seen as rivals to the U.S. currency as global safe-haven assets, Morgan Stanley strategists wrote. They see the euro rising to 1.25 by 2026 from around 1.13 now, while the dollar continues to fall. The yen, currently trading at around 143 to the dollar, could strengthen to 130, the analysts said.
The bank said 10-year Treasury bond yields will hit 4 percent by the end of 2025 and will experience a much larger decline in 2026, as the U.S. Federal Reserve offers a 175 basis point interest rate cut.
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