Sou Hu Cai Jing·2025-11-06 14:12Core Viewpoint - The article discusses the transition from a strong dollar cycle to a weak dollar cycle, highlighting the expected decline of the US dollar and its implications for global assets and currencies [1][2][3]. Summary by Sections Dollar Cycle Phases - The dollar has experienced various cycles since 1971, with the current phase being a weak dollar cycle that has lasted over a year [1]. - Morgan Stanley predicts a significant decline in the DXY dollar index to 89 by the end of 2026, approximately 10% lower than the current level of 99.7 [2]. Currency Predictions - By the end of 2026, the euro is expected to rise from 1.1533 to 1.27 against the dollar, and the British pound from 1.3111 to 1.47 [2]. - The dollar is projected to fall against the Japanese yen from 154 to 124 [2]. - Deutsche Bank forecasts the dollar to yuan exchange rate to drop to 6.7 by the end of 2026 [2]. Monetary Policy and Interest Rates - The Federal Reserve recently lowered the federal funds rate by 25 basis points to a target range of 3.75%–4.00%, signaling a gradual easing approach [2]. - Market expectations for further rate cuts in 2026 have decreased, with a potential terminal rate approaching 3% [2]. Factors Influencing Dollar Weakness - Interest rate differentials are narrowing, with the Fed's rate cuts and the European Central Bank's slower rate cuts expected to reduce the dollar's carry trade advantage [3]. - Fiscal policies, including the anticipated tax cuts under Trump, are projected to increase federal deficits significantly, contributing to a weaker dollar [3]. - Global trust in the dollar as a safe asset is diminishing due to geopolitical tensions and economic policies, with the IMF reporting the lowest global dollar reserve share since 1995 [3]. Asset Rotation and Market Sentiment - A clear rotation in global assets is anticipated, with risk assets rebounding and commodity prices rising as the dollar weakens [7]. - Institutions like Allianz, UBS, and Bank of America recognize the consensus on a weaker dollar, shifting market logic towards buying non-dollar assets [7]. - UBS has upgraded emerging market stocks to overweight, particularly favoring Chinese stocks due to their relative valuation and low foreign investor holdings [7].