① Including Morgan Stanley Goldman Sachs and Deutsche Bank Wall Street banks, including It is predicted that the dollar will resume its decline next year as the Federal Reserve continues its rate-cutting cycle; however, the dollar's decline next year is expected to be more moderate and less widespread than this year, when the dollar fell against all major currencies.
Wall Street banks, including Morgan Stanley , Goldman Sachs , and Deutsche Bank , predict that the dollar will resume its decline next year as the Federal Reserve continues its rate-cutting cycle.
In the first half of this year, impacted by the trade war initiated by US President Trump, the US dollar index once fell by more than 10%, marking its largest drop for the same period since 1973. However, the dollar's trend has stabilized in the second half of the year.
However, strategists predict that the dollar will weaken again in 2026 as the Federal Reserve continues to ease monetary policy while other central banks maintain or gradually raise interest rates. This interest rate differential will prompt investors to sell US Treasuries and shift funds to countries with higher yields.
Therefore, analysts from more than six major investment banks generally believe that the US dollar will weaken against major currencies such as the Japanese yen, the euro, and the British pound. According to a consensus forecast, the US dollar index will fall by approximately 3% by the end of 2026.
“The market has ample room to digest a deeper rate-cutting cycle,” said David Adams, head of G-10 FX strategy at Morgan Stanley . “This means the dollar still has considerable room to weaken further.” The bank expects the dollar to fall 5% in the first half of next year.
However, the dollar's decline next year is expected to be more moderate and less widespread than this year, when it fell against all major currencies.
Traders are currently betting on two more 25-basis-point rate cuts by the Federal Reserve next year, and with Trump set to appoint a new Fed chair to replace Powell, further rate cuts under pressure from the White House are not out of the question. Meanwhile, the European Central Bank is expected to keep interest rates unchanged, while the Bank of Japan may gradually raise rates.
“We believe the risks to the dollar outweigh the risks to the dollar,” JPMorgan Chase said. Luis Oganes, head of global macro research, said.
A weaker dollar will have broader economic implications, including pushing up import costs, increasing the value of overseas profits, and boosting exports, which is likely something the Trump administration would welcome.
In addition, a weaker dollar could extend the emerging market rally as investors shift funds to regions with higher interest rates.
This trend has driven emerging market carry trades (i.e., borrowing in low-interest-rate countries and investing in high-yield countries) to their highest returns since 2009. JPMorgan Chase and Bank of America ... All believe there is still potential for future appreciation, and are optimistic about the Brazilian real, as well as some Asian currencies such as the South Korean won and the Chinese yuan.
Goldman Sachs analyst Kamakshya Trivedi's team noted this month that the market is also beginning to price in a more optimistic economic outlook for other G-10 currencies, such as the Canadian dollar and the Australian dollar, primarily benefiting from better-than-expected data. They pointed out that the US dollar has a tendency to perform well "when the global economy is strong." It has the characteristic of "tendency to depreciate".
In their annual outlook released last month, George Saravelos, global head of foreign exchange research at Deutsche Bank , and his New York colleague Tim Baker stated that the US dollar has benefited from an "exceptionally strong" US economy and rising US stocks over the past year. However, they believe the dollar is overvalued and predict that it will generally weaken against major currencies next year as economies and stock markets in other regions recover.
"If these predictions come true, it will mean the end of the unusually long dollar bull market that has lasted since 2020," they wrote.
(Article source: CLS)
