Wall Street Predictions for the Dollar's Performance in 2026

SadaNews - After the US dollar faced a significant blow in 2025, pressured by the tariffs imposed by President Donald Trump and the US Federal Reserve's three consecutive interest rate cuts, major banks and Wall Street firms - which did not take into account the developments in Venezuela - lean towards further depreciation of the dollar in 2026.

Below are the key predictions from Wall Street for the greenback:

BNP Paribas

They expect a volatile performance for the dollar, suggesting that the US currency may take a more balanced path next year, after a year of general decline in 2025. They noted that the decrease in flows aimed at hedging and the continued inflows into US stocks backed by artificial intelligence investments could support the greenback, despite the downturn in demand for treasury bonds. They also projected a slight increase in the euro to dollar exchange rate compared to futures levels, as the euro could benefit from a greater-than-expected growth in the Eurozone economy.

It is also expected that the greenback will lose momentum against high-yield emerging market currencies while maintaining relative strength against Asian currencies.

Morgan Stanley

Although it expects continued depreciation of the dollar during the first half of 2026, they anticipate it will start to recover at some point in the second quarter as it nears the end of its bear market. They highlighted that the dollar index is expected to face a volatile year, asserting that the declines and recoveries reflect changes in interest rate differentials and risk premiums, which may rise due to concerns about the US labor market, Fed management, and the path of interest rate cuts, although they will not reach earlier year levels. European currencies are expected to decline against the dollar as the European Central Bank and the Bank of England cut interest rates.

JP Morgan

They generally adopt a negative outlook for the dollar, though less severe and narrower in scope compared to 2025, pointing out that a mix of the Fed's ongoing concern about the labor market decline and a moderate risk environment supporting a range of high-yield foreign currencies could lead to an overall decline in the dollar, but strong economic growth in the US and ongoing inflation are restraining that downward trajectory.

They also expect a slight increase in the euro against the dollar, supported by growth in the Eurozone economy and fiscal expansion in Germany, explaining that any rise in the euro against the dollar is expected to be modest compared to 2025 unless US data reflects significant weakness.

In numerical terms, it is expected that the euro to dollar exchange rate will reach $1.18 by the end of the first quarter, and $1.20 for the rest of the year, while the dollar to Japanese yen exchange rate will reach ¥157 by the end of the first quarter, and ¥158 by the end of the quarter ending in June, and ¥160 and ¥164 in the third and fourth quarters respectively.

Standard Chartered

Manpreet Gill, Chief Investment Officer for the Middle East, Africa, and Europe at the bank, said in an interview with "Asharq" that the expected interest rate cuts and the decline in the US dollar's strength will create a positive environment for risky assets, adding that emerging market bonds are poised to outperform their developed market counterparts, supported by higher yields and expectations of dollar weakness.

Barclays

With the US economy returning to normal growth rates and monetary policy easing, the decline in the dollar may support emerging market stocks, which remain cheaper than those in developed markets.

UBS

The dollar may come under pressure from the expected interest rate cuts in the US, which would boost the appeal of the euro, the Australian dollar, and the Norwegian krone at the expense of the greenback. Fiscal tightening may increase currency volatility in the future, while high-yield currencies are expected to benefit from an increased appetite for risk in the foreign exchange market next year.

Franklin Templeton

The continued decline of the dollar will be influenced by factors including further potential interest rate cuts from the Fed due to the slowdown in the labor market, which will support assets denominated in local currencies outside the US.

Bank of America

The dollar's decline will enhance the competitiveness of US goods and services, contributing to the growth of profits for US export companies and multinational firms with operations abroad.

Citi Group

Not all predictions are negative, as this bank has maintained its optimistic outlook for the dollar, despite diverging from the consensus. They reaffirmed that this is supported by cyclical rather than structural factors. They expect the greenback to recover in the first half of 2026, as the US economy accelerates, and that the euro to US dollar exchange rate will decline to $1.10 by mid-next year, noting that the structural mechanisms may exert strong pressure on the dollar in the future, but the implications for exchange rate trends may take years to materialize.

Deutsche Bank

The bank also predicts the US dollar exchange rate against the euro will remain stable at the current level by the end of 2026, supported by the correlation between US stocks and the greenback. The dollar may also receive support from significant incoming flows due to the relative and absolute strength of the economy, the financial measures under Trump’s tax law, the relative calm in the dispute with China, massive AI investments, and the potential for tariffs to attract foreign direct investments.

Furthermore, the impact of Trump’s tax law may not only support US stock prices but also lead to an increase in government debt, which could erode confidence in the dollar, a concern that may also be exacerbated by growing doubts about the Fed's independence following the appointment of a new chair in late May 2026.