LIVE MARKETS-Dollar faces further weakness, but should rebound next year

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DOLLAR FACES FURTHER WEAKNESS, BUT SHOULD REBOUND NEXT YEAR

The U.S. dollar's decline likely has further room to run with the U.S. economy expected to soften in the coming months, but an economic rebound should then lift the currency next year, according to Morgan Stanley.

“The US economy has been really strong for the last couple of quarters, and we see that as softening over the fourth quarter and the first quarter of next year and then starting to pick up again,” James Lord, head of FX and emerging market strategy at Morgan Stanley, said in an interview.

“The dollar then rebounds as the year progresses. But we do think for the next three-to-six months or so we're going to be in a little bit more of a soft patch.”

The U.S. currency is also likely to be a dominant driver of broader currency moves, with many other regions having a less compelling outlook.

“A lot of the volatility in the macro cycle is really being driven by the US,” Lord said.

Morgan Stanley expects the euro EUR= to reach $1.23 against the greenback, before the U.S. dollar rebounds. It was at $1.16 on Monday. The dollar index .DXY is also expected to fall to 94, from 99 on Monday, before rising back to 99 by the end of 2026.

(Karen Brettell)

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