Core Viewpoint - Major Wall Street banks are bearish on the US dollar, predicting a decline as the Federal Reserve continues its easing cycle, with Morgan Stanley forecasting a 5% drop in the first half of next year [1][2]. Group 1: Predictions on the US Dollar - Deutsche Bank, Morgan Stanley, and Goldman Sachs anticipate a weakening of the dollar in 2026 due to the Fed's continued easing while other central banks maintain or raise rates [2]. - The Bloomberg consensus predicts a 3% decline in the dollar index by the end of 2026 [2]. - Morgan Stanley's David Adams states that the dollar has ample room for further depreciation, expecting a 5% drop in the first half of next year [2][3]. Group 2: Economic Implications - A weaker dollar is expected to have a chain reaction on the US economy, increasing import costs, enhancing the value of overseas profits for companies, and boosting exports [4]. - The shift of investor funds to emerging markets for higher yields could extend the rally in these markets, with significant returns recorded in carry trades since 2009 [4]. Group 3: Market Sentiment and Currency Trends - Analysts note that the dollar tends to depreciate when global economic performance is strong, with G10 currencies like the Canadian and Australian dollars benefiting from better-than-expected data [5]. - Some institutions, like Citigroup and Standard Chartered, maintain a bullish outlook on the dollar, citing the strength of the US economy driven by AI and potential international capital inflows [5]. Group 4: Federal Reserve's Stance - The Federal Reserve has raised its growth forecast for 2026 while announcing a 25 basis point rate cut, indicating a cautious approach to future monetary policy [6]. - Market expectations include two more 25 basis point cuts next year, with a focus on the new Fed chair's potential influence on future rate decisions [6].

Core Viewpoint - Major Wall Street investment banks, including Deutsche Bank and Goldman Sachs, predict that the US dollar will resume its downward trend next year as the Federal Reserve continues to lower interest rates [1][5]. Group 1: Dollar Weakness Predictions - The dollar experienced its largest decline since the early 1970s in the first half of this year due to market turmoil caused by President Trump's trade war, but has stabilized over the past six months [1]. - Strategists expect the dollar to weaken again by 2026, driven by the Fed's continued implementation of loose monetary policy while other major central banks maintain or gradually increase interest rates [1][6]. - A consensus forecast compiled by Bloomberg predicts that a widely tracked dollar index will depreciate by approximately 3% by the end of 2026 [1]. Group 2: Economic Implications - The anticipated decline in the dollar is expected to have a chain reaction on the overall economy, leading to increased import costs, higher value of overseas profits for companies, and a boost in exports [6]. - The weakening dollar may be welcomed by the Trump administration, which has consistently complained about the US trade deficit [6]. Group 3: Emerging Markets and Currency Trends - The flow of funds into emerging markets for higher yields has led to the largest returns from carry trades since 2009, with JPMorgan and Bank of America optimistic about further appreciation of emerging market currencies [7]. - Analysts from Goldman Sachs noted that as economic data from multiple countries improves, market expectations for currencies like the Canadian dollar and Australian dollar are being revised upward [7]. Group 4: Diverging Economic Outlooks - Some contrarian investors believe the dollar may appreciate against certain major currencies, citing the strong performance of the US economy, particularly driven by the AI boom [7]. - Citigroup and Standard Chartered analysts suggest that the growth in the US economy will attract significant investment inflows, potentially boosting the dollar's value [7]. Group 5: Federal Reserve's Policy Impact - The Federal Reserve has raised its economic growth forecast for 2026, indicating a potentially better-than-expected economic outlook, despite announcing a 25 basis point rate cut and plans for another cut next year [8]. - Fed Chair Jerome Powell alleviated market concerns about a shift towards tightening monetary policy, emphasizing the focus on the weak labor market and inflation above target levels [8].