Morgan Stanley
2026 FX Outlook: The Year of Pivots
Performance Snapshot
DXY
100.2
Target: 99
EUR/USD
1.15
Target: 1.16
USD/JPY
157
Target: 140
USD Bias
BEARISH
DXY Forecast Path
USD Sensitivity Analysis
Top Currency Pairs
| Pair | Direction | Status | Spot | Live | Trend | Dec 26 | vs Spot | vs Live |
|---|---|---|---|---|---|---|---|---|
| TRY | Sell TRY | -- | 42.45 | -- | 52 | -18.4% | -- | |
| GBP | Buy GBP | -- | 1.31 | -- | 1.47 | +12.2% | -- | |
| HUF | Buy HUF | -- | 332 | -- | 295 | +11.1% | -- | |
| AUD | Buy AUD | -- | 0.64 | -- | 0.71 | +10.9% | -- | |
| JPY | Buy JPY | -- | 157 | -- | 140 | +10.8% | -- | |
| PLN | Buy PLN | -- | 3.67 | -- | 3.3 | +10.1% | -- | |
| ZAR | Buy ZAR | -- | 17.31 | -- | 15.75 | +9.0% | -- | |
| NZD | Buy NZD | -- | 0.56 | -- | 0.61 | +8.9% | -- |
Explore Report Sections
Macro Trade Themes
USD Bear Regime
Short USD in first half of 2026
Broad USD weakness driven by Fed cutting cycle, twin deficit concerns, and global growth rotation. DXY expected to trough near 94 by Q2. Prefer expressing via EUR/USD longs and USD/JPY shorts. Close USD shorts in Q3 as US growth re-accelerates.
Sterling Outperformance
GBP is our top G10 pick for 2026
UK growth resilience, attractive carry, and fiscal credibility post-budget make GBP the standout performer in 2026. Cable to reach 1.47 by Q4. EUR/GBP to decline as UK outperforms eurozone. BoE gradual easing pace supports sterling yield advantage.
Yen Normalization
Long JPY on BoJ rate hikes
BoJ to normalize policy rate to 0.75% by year-end 2026. Narrowing rate differentials and reduced carry appeal drive USD/JPY to 140. Real yield convergence between Japan and US accelerates. Intervention risk adds asymmetric downside for USD/JPY above 155.
Swiss Franc Fade
CHF weakening as Europe grows
Swiss franc safe-haven premium to erode as European growth broadens and risk appetite improves. SNB accommodative stance and REER overvaluation support CHF weakness. EUR/CHF to rise. Use CHF as funder for carry trades across G10.
H2 Dollar Recovery
Tactical USD longs in Q3-Q4
US growth re-acceleration in H2, combined with Fed pause and relative outperformance, drives partial DXY recovery from 94 to 99. Tactical USD longs vs EUR and commodity currencies. The V-shape in DXY is our highest conviction call for 2026.