New Delhi [India], November 27 (ANI): The U.S. dollar could weaken further before recovering next year, according to Morgan Stanley’s 2026 Investment Strategy Outlook.
“The U.S. dollar is likely to be on a choppy path over the next 12 months, with continued weakening in the coming months followed by a recovery and an end to the dollar’s bear market in the second half of 2026,” the report noted.
The U.S. dollar index, currently around 100, may fall to 94 in the second quarter of 2026, its lowest level since 2021, before climbing back to 100 by year-end. The trajectory depends on U.S. growth, unemployment, and interest rates.
Morgan Stanley highlighted that this projection marks an upgrade from its earlier view, which suggested the dollar could lose as much as 10% from mid-2026 through the end of the year. David Adams, Head of G10 FX Strategy, noted that the October Federal Reserve meeting reinforced perceptions that U.S. rates are unlikely to decline as much or as quickly as previously expected. Easing inflation and cooling trade tensions are also expected to support the dollar.
The bank’s 2026 Economic Outlook anticipates U.S. growth to slow early next year before rising to 1.8% by year-end, while core PCE inflation may ease to 2.6% from 2.9%. With the Fed expected to cut rates to 3%-3.25% by June, analysts maintain a bearish medium-term view, citing labor market uncertainty and upcoming changes in FOMC composition.
Morgan Stanley identified three key drivers for a late-2026 rebound: a resilient growth outlook supported by the “One Big Beautiful Bill,” a rebound in U.S. rates as cuts conclude, and a shift in corporate and investor hedging behaviour, boosting confidence in the dollar. (ANI)
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