Morgan Stanley: Dollar To Lose 9% By Mid-2026, EUR/USD Forecast 1.25 - Exchange Rates UK

What the desk is arguing

The desk frames this as a pivotal moment for the dollar, asserting that external factors such as geopolitical tensions and domestic economic performance will drive this lengthy devaluation. The specific forecast from Morgan Stanley sets a clear benchmark for market expectations regarding the dollar's trajectory.

Supporting this view, current forecasts from other firms like JPMorgan and Goldman Sachs indicate a consensus for EUR/USD to reach around 1.2000 by the end of 2026. This collective perspective underlines a risk-off sentiment regarding the dollar in comparison to the euro, suggesting a broader market alignment towards euro-strengthening dynamics.

Where it sits in our coverage

Our consensus forecast for EUR/USD sees a median target of 1.2000, with firms such as JPMorgan (1.2000), Goldman Sachs (1.2500), and Deutsche Bank (1.2500) projecting levels that resonate with Morgan Stanley's findings but vary slightly in specificity.

The positioning sits at the upper end of the anticipated spread, reflecting a bullish stance on the euro against the dollar as other firms also suggest upward momentum. This consensus indicates a market readiness for stronger euro valuations by 2026, diverging from a potentially weakening dollar narrative.

How other firms see it

Firms like JPMorgan, Goldman Sachs, and MUFG are aligned in their forecasts, suggesting optimism towards EUR/USD strength. In contrast, firms such as Citi and BofA present more conservative views with lower targets, signaling caution around euro appreciation.

As this thesis plays out, the USD/JPY pair is worth monitoring, particularly with Japan's ongoing monetary policy adjustments juxtaposed against the Fed’s tightening, which may add volatility to both pairs. Other influential indicators may include PMI readings and inflation data, which could further inform views on the economic health of both the U.S. and Eurozone.