Morgan Stanley US dollar decline forecast actually predicts an additional 10% drop by end-2026, and this comes right after the greenback’s worst performance since 1973. The Morgan Stanley US dollar outlook shows the currency fell around 11% in the first half of 2025, which effectively ended a structural bull cycle that had been running since 2010. Morgan Stanley’s decision to sell US dollar positions reflects policy uncertainty along with shifting global investment patterns as the bank’s global outlook 2025 anticipates continued weakness ahead.
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US Dollar Trends And Market Outlook Amid Global Uncertainty in 2025 & 2026

Morgan Stanley US Dollar Decline Forecast Shows Historic Shift
The Morgan Stanley US dollar decline forecast actually marks a turning point for global currency markets right now. The dollar index’s 11% decline represents the biggest loss since 1973, and analysts believe this is just the beginning of something bigger.
David Adams, head of G10 FX Strategy at Morgan Stanley, stated:
“We’re likely at the intermission rather than the finale. The second act for the dollar’s weakening should come over the next 12 months, as US interest rates and growth converge with those of the rest of the world.”
The Morgan Stanley US dollar outlook has been revised as rate differentials are being narrowed between the US and other major economies. At the time of writing, eurozone rates stand at 2%, Japan at 0.5%, and China at 3%, while the Fed maintains rates at 5.25%-5.5%.
Policy Uncertainty Drives Morgan Stanley US Dollar Decline Forecast
Trump’s tariff policies have actually created significant uncertainty, which contradicts initial expectations that these measures would strengthen the currency. The Morgan Stanley global outlook for 2025 now projects US growth slowing to 1.5% this year and 1% in 2026, down from 2.8% in 2024.
James Lord, Morgan Stanley’s Chief Global FX Strategist, had this to say:
“If we see more evidence over the summer that tariffs are increasing inflation, then it’s possible the dollar will receive more support. Yet, recent evidence of labor market weakness combined with policy uncertainty in the U.S., such as tariff negotiations and the recent debate about an early change in the Fed’s leadership, remains a source of downward pressure on the dollar.”
Foreign Investment Patterns Support Morgan Stanley US Dollar Decline Forecast
International investors hold over $30 trillion in US assets right now, with European investors controlling $8 trillion in American securities. Morgan Stanley’s de-dollarization analysis shows most holdings remain unhedged, but this is changing rapidly.
Adams explained the significance of hedging behavior:
“The initial data suggest that hedging has picked up in the second quarter, but because of the size of U.S. asset holdings and given how much it was initially unhedged, we could be talking about a significant long-term flow. We have a lot more to go from here.”
This hedging activity actually translates directly to dollar selling pressure, which supports the Morgan Stanley US dollar decline forecast through 2026.
The euro has gained 11.5% against the dollar this year, reaching four-year highs. A Bank of America survey revealed the lowest dollar exposure among fund managers since 2005, which indicates broad-based portfolio reallocation away from US assets.
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The analysis by Morgan Stanley indicates that current fall is structural, not a one-off remedy, and convergence of rates and uncertainty over policy will produce long-term downward pressure on the green back until 2026.