JPMorgan Forecasts Dollar Weakness in 2026 Amid Fed Easing, But Hike Bets Pose Risks

According to Bloomberg, JPMorgan Chase & Co. anticipates a softer US dollar throughout 2026, driven by anticipated looser monetary and fiscal policies from the Federal Reserve and the US government. However, the bank warns that any surge in market expectations for interest-rate hikes could swiftly undermine this trajectory, potentially reversing recent declines.

The dollar has already shed approximately 9% against a basket of major currencies in 2025, with the Bloomberg Dollar Spot Index dropping 8.7% over the year. As one of the largest players in global currency trading, JPMorgan is advising clients to prepare for continued depreciation next year, per a fresh report released Monday by strategists Jay Barry and Meera Chandan.

At the core of this outlook lies the Fed's projected path: a 25-basis-point rate cut in December, followed by three additional quarter-point reductions in the first half of 2026, lowering the federal funds rate to about 3.75% from its current 4.5%. "Easier US monetary and fiscal policy should support a weaker dollar next year," the analysts stated, highlighting how reduced borrowing costs could erode the greenback's appeal relative to other currencies.

Yet, vulnerabilities abound. JPMorgan highlights that persistent inflation - possibly fueled by new tariffs or robust economic growth - might lead traders to bet on fewer cuts or even rate increases by 2027, bolstering the dollar anew. "A re-pricing of Fed policy toward fewer cuts or even hikes would be dollar-positive," the report cautions, underscoring how quickly sentiment could shift.

This perspective echoes wider Wall Street views, where futures markets now embed an 85% probability of a December easing, a jump from 60% just last week. As of Monday morning, the dollar index hovered at 102.34, flirting with its yearly troughs, leaving investors to weigh the promise of policy support against the specter of inflationary surprises.