The value of the U.S. dollar against other currencies dropped about 11% in the first half of this year, the biggest decline in more than 50 years, ending a 15-year bull cycle.
Morgan Stanley Research estimates the U.S. currency could lose another 10% by the end of 2026.
Despite a recovery of 3.2% in July, the delayed impact of tariffs on growth and unemployment – besides policy uncertainties – are likely to keep negative pressure on the dollar.
Foreign investors have been adding hedges to their exposure to U.S. assets, which will likely further weaken the dollar.
The U.S. dollar ended the first half of 2025 with its biggest loss since 1973. The dollar index, which measures the greenback against a basket of currencies of the U.S.’s major trading partners, fell about 11% from January through the end of June.
That decline also marked the end of a structural bull cycle for the dollar, which started in 2010 and ended in 2024 with an accumulated gain of about 40%.
Although the currency strengthened 3.2% in July, recovering some of this year’s depreciation, Morgan Stanley Research expects the decline to continue, possibly adding another 10% in losses by the end of next year.
“We're likely at the intermission rather than the finale,” says David Adams, head of G10 FX Strategy at Morgan Stanley. “The second act for the dollar’s weakening should come over the next 12 months, as U.S. interest rates and growth converge with those of the rest of the world.”
The U.S. currency depreciation could have significant impacts for consumers, businesses, investors and ultimately for the overall economy: It would be more expensive for Americans to travel abroad. U.S. assets could be less compelling for foreign investors. Import prices could rise, putting pressure on inflation. On the positive side, however, the weaker dollar could be a boost for American exporters.