Major financial institutions on Wall Street, most notably Goldman Sachs, are looking towards a downward scenario for the greenback, with forecasts indicating that the US dollar will resume its decline during the coming year 2026, driven by the Federal Reserve's intentions to cut interest rates.
Strategic analysts at major banks paint a bleak picture of the dollar's near-term performance, attributing this to the anticipated divergence in global monetary policies. While the US Federal Reserve continues its policy of monetary easing and interest rate cuts, other major economies are either maintaining current interest rates or moving toward raising them. This divergence creates an unfavorable environment for investments in US debt, as investors are expected to liquidate their dollar holdings in search of higher returns in competing currency markets.
This pessimistic view has been echoed by experts from more than six major investment banks, including the elite group Goldman Sachs, Deutsche Bank, Bank of America, Wells Fargo, JPMorgan Chase, Morgan Stanley, and Citigroup. These institutions all agree on an anticipated decline in the value of the dollar against a basket of major currencies, particularly the Japanese yen, the euro, and the British pound.
Economic context and historical background
These projections come amid a period of volatility for the US dollar, which experienced a sharp decline in the first half of this year, impacted by the repercussions of the trade war and the protectionist policies pursued by President Donald Trump. Despite the relative stability the dollar has seen in recent months, economic fundamentals suggest this stability may be temporary.
Expected impacts on global markets
Economically, a weakening dollar has far-reaching effects that extend beyond the United States. Historically, there has been an inverse relationship between the value of the dollar and commodity prices; a weaker US currency often leads to higher prices for dollar-denominated oil, gold, and other commodities, which can boost the revenues of countries exporting these goods.
Internationally, a weaker dollar could offer some relief to emerging markets and countries burdened with dollar-denominated debt, as it reduces debt servicing costs and eases pressure on their local currencies. For the US economy, a weaker dollar makes American exports more competitive in global markets, but it could also increase the cost of imports, posing new challenges to domestic inflation.
