Morgan Stanley Predicts 9% Drop for Dollar as Fed Cuts Loom

​Morgan Stanley is forecasting a major decline in the U.S. dollar—as much as 9% by mid-2026—driven by rate cuts, slowing growth, and waning confidence in U.S. trade policy.

In a note dated May 31, strategists led by Matthew Hornbach said the U.S. Dollar Index (DXY) could fall to 91, levels not seen since the pandemic. They argue that both rate and currency markets have now entered a sustained downtrend after two years of volatility.

The dollar has already weakened nearly 10% since February, as President Trump’s aggressive tariff agenda—combined with growing deficit fears—has sparked renewed scrutiny of U.S. assets.

Winners from a weaker dollar could include the euro, yen, and Swiss franc, which Morgan Stanley calls the dollar’s top rivals in the global safe-haven category. The euro is projected to rise to 1.25 (from 1.13), the pound to 1.45, and the yen to 130 (from 143).

The firm also sees 10-year Treasury yields falling sharply next year, with the Fed expected to deliver 175 basis points of rate cuts, following a climb to 4% by the end of this year.

Dollar short positions are at their highest since 2023, especially among leveraged funds and asset managers—indicating broader expectations of continued weakness.

Bottom line: With rate cuts coming and confidence slipping, the dollar could be entering a sustained downturn. Morgan Stanley is positioning for a major shift in global currency flows—and betting the greenback won’t be the winner.






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