NEW YORK – The US dollar will tumble to levels last seen during the Covid-19 pandemic by the middle of 2026, hit by interest rate cuts and slowing growth, according to predictions by Morgan Stanley.
The US Dollar Index will fall around 9 per cent to hit 91 by around this time in 2026, strategists including managing director Matthew Hornbach predicted in a May 31 note.
That will exacerbate a recent decline in the greenback, as trade turmoil weighs on the US currency.
“We think rates and currency markets have embarked on sizeable trends that will be sustained – taking the US dollar much lower and yield curves much steeper – after two years of swing trading within wide ranges,” the strategists wrote.
The Morgan Stanley report adds to a chorus of voices questioning the outlook for the dollar, as traders and analysts weigh up US President Donald Trump’s disruptive approach to trade.
JPMorgan Chase & Co strategists led by Ms Meera Chandan told investors last week they remain bearish on the US currency, instead recommending bets on the yen, euro and Australian dollar.
The US Dollar Index has dropped nearly 10 per cent since a February peak as Mr Trump’s trade policies dent sentiment on US assets and trigger a rethink on the world’s reliance on the greenback.
Still, the bearishness is far from historical extremes, underscoring the potential for more dollar weakness ahead, the US’ Commodity Futures Trading Commission data showed.
The biggest winners from dollar weakness will be the euro, yen and Swiss franc, widely regarded as the greenback’s rivals as global safe havens, the Morgan Stanley strategists wrote.
They see the euro rising to around the 1.25 level next year from around 1.13 now as the dollar slides.
The pound may also advance from 1.35 to 1.45, aided by “high carry” – the return investors can get from holding the currency – and Britain’s low trade tension risks.
The yen, currently trading at around 143 per dollar, may strengthen to 130, the analysts said.
The bank said that 10-year Treasury yields will reach 4 per cent by the end of 2025, and stage a much larger decline in 2026 as the US Federal Reserve delivers 175 basis points of rate cuts.
The dollar was lower against a range of currencies during early Asian trading on June 2, with a Bloomberg gauge of the currency around 0.2 per cent weaker.
It was flat against the Singapore currency as at 11.24am on June 2. To date this year, the US currency has weakened 5 per cent against the Singdollar. BLOOMBERG
Join ST’s Telegram channel and get the latest breaking news delivered to you.
