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US dollar fall in 2026: forecast from Morgan Stanley
The US dollar is currently experiencing a noticeable weakening. This process has been going on for several quarters now and, according to many analysts, is not yet over. At the same time, the contours of a future recovery are already visible. Here's what it looks like now and what to expect in the near future.
Why the dollar is weakening
The main reasons are the slowdown in the US economy and the Federal Reserve's easing policy. The market no longer sees the dollar as the undisputed "king" as it used to. According to Morgan Stanley's forecast, the combination of loose monetary policy and a gradual leveling off of global growth will create sustained pressure on the dollar in the first half of 2026.
As global inflation declines and trade wars recede a bit, money begins to flow out of the dollar and into other currencies and assets. In addition, dollar-denominated loans (carry trades) are becoming less attractive as interest rates fall and risks increase.
The first half of 2026 is the lowest point
Most likely, it is in the first half of the year that the dollar will show its bottom. The DXY index could easily drop to levels not seen in several years.
The Fed will continue to cut rates, US growth will remain moderate, and inflation will remain under control. All this together creates ideal conditions for further weakening of the US currency.
The second half of the year is the beginning of a rebound
After the middle of the year, the situation will begin to change. The Fed will complete the main cycle of rate cuts, and US interest rates will again look more attractive against other major economies.
In addition, US GDP growth will gradually accelerate. It is these two factors - more stable rates and better economic dynamics - that will bring the dollar back to strength.
How it will affect investors and the world
A weak dollar makes U.S. exports cheaper and imports more expensive. For many countries, this is a chance to increase sales to the United States.
Investors are now looking to other currencies, commodities, and gold. However, by the end of the year, the dollar is likely to become a reliable hedge against those who like stability.
A short transition to a new equilibrium
The dollar is not going away and will not lose its reserve currency status forever. It is currently going through a correction phase, after which it is likely to find a new, slightly lower, but stable equilibrium point, according to Morgan Stanley.
The main thing is not to panic at a fall and not to rush to celebrate at a recovery. The market is just taking another big breath before the next step.
Source: Morgan Stanley
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