The US dollar is projected to fall to levels last seen during the Covid-19 pandemic by mid-2026, driven by interest rate cuts and slowing economic growth, according to forecasts from Morgan Stanley.
The US Dollar Index is expected to drop by about 9 percent to 91 by mid-2026, according to a note from Morgan Stanley strategists, including managing director Matthew Hornbach, on May 31.
This decline would deepen the dollar’s recent downtrend, as rising trade turbulence weighs on the currency.
“We believe that the rates and currency markets have embarked on a major trend that will continue—driving the dollar much lower and making the yield curve much steeper—after two years of wide-range volatility,” the strategists wrote.
Morgan Stanley’s report adds to the growing list of voices questioning the outlook for the US dollar, as market participants and analysts weigh the effects of President Donald Trump’s tumultuous trade approach.
JPMorgan Chase & Co strategists led by Meera Chandan told investors last week that they remain bearish on the US dollar and instead recommend investments in the yen, euro, and Australian dollar.
The US Dollar Index has already fallen nearly 10 percent from its February peak, as Trump’s trade policies have dampened sentiment toward US assets and led global markets to reassess their reliance on the greenback.
Still, pessimism toward the dollar has not reached historically extreme levels, suggesting there is room for further weakness, according to data from the US Commodity Futures Trading Commission (CFTC).
The currencies expected to benefit the most from dollar weakness are the euro, yen, and Swiss franc, which are widely regarded as the dollar’s safe-haven rivals, the Morgan Stanley strategists noted.
They project the euro will rise to around 1.25 next year from about 1.13 currently, as the dollar weakens.
The British pound is also expected to strengthen from 1.35 to 1.45, supported by its “high carry”—the yields investors can earn by holding the currency—and low risk of UK trade tensions.
The yen, currently trading around 143 per dollar, could strengthen to 130, the analysts said.
Morgan Stanley also forecasts that yields on 10-year US Treasuries will rise to 4 percent by the end of 2025 before falling significantly in 2026 as the Federal Reserve cuts interest rates by 175 basis points.
The dollar weakened against a basket of currencies in early Asian trading on June 2, with the Bloomberg Dollar Spot Index down about 0.2 percent.
Against the Singapore dollar, the greenback was little changed as of 11:24 a.m. local time on June 2. So far in 2025, the US dollar has weakened by 5 percent against the Singapore dollar.
