Morgan Stanley expects the US dollar to weaken significantly over the next two years, as interest rate cuts and slowing US economic growth erode support for the currency.
The bank's strategists forecast a 9 percent drop in the Dollar Index to 91 by mid-2026 – a level last seen during the COVID-19 pandemic, according to a research note.
They said that after two years of broad market swings, interest rate and currency markets are now showing signs of entering a more sustained trend, marked by a significantly weaker US dollar and a notably steeper yield curve.
They also noted that tariffs and other trade policies introduced under US President Donald Trump have undermined investor confidence in US assets and triggered a reassessment of global reliance on the dollar. The US Dollar Index has fallen nearly 10 percent from its February peak.
The bank said the euro, yen and Swiss franc are likely to emerge as the biggest beneficiaries of a weakening US dollar, given their status as key safe-haven currencies that compete with the greenback.
They forecast the euro will strengthen from its current level of 1.13 to around 1.25 by mid-2026. The British pound may also rise from 1.35 to 1.45, supported by relatively lower trade tensions facing the UK. Meanwhile, the Japanese yen is projected to appreciate from 143 to 130 per US dollar.
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