Morgan Stanley
2026 FX Outlook: The Year of Pivots
LIVE20 November 2025USD bearish
Back to CurrenciesBullish (H1), Fading (H2)
EUR/USD
Front-loaded gains, H2 giveback
MS Forecast Path
vs Prior ForecastCurrent target: 1.16Prior target: 1.2Revision: -3.3%
Cross-Firm Forecast Comparison
Key Drivers
Fed cutting trajectory
German fiscal delivery
ECB terminal rate
Relative growth momentum
Portfolio rebalancing flows
All Firm Targets (Dec '26)
GSBullish1.2500
DBStrongly Bullish1.2500
MUFGBullish1.2400
INGBullish1.2200
BofABullish1.2200
BARCModerately Bullish1.2100
JPMModerately Bullish1.2000
MSBullish (H1), Fading (H2)1.1600
Key Issues for 2026
1.German fiscal expansion provides genuine growth uplift in H1
2.ECB pauses at 2.5% as core inflation stabilizes
3.EUR/USD peaks at 1.23 by Q2 on Fed-ECB convergence
4.H2 reversal as US growth re-accelerates and rate spreads widen
5.Net flat for the year but high intra-year volatility
Risk Scenarios
Very bullish1.28+
US recession forces aggressive Fed cuts while EU growth surprises
Slightly bullish1.20-1.23
Fed delivers 100bp cuts, German fiscal stimulus gains traction
Base case H21.14-1.18
US growth rebounds, EUR/USD reverses H1 gains
Most bearish1.08-1.10
EU recession + additional ECB cuts + US exceptionalism returns
Analysis Summary
EUR/USD to benefit from German fiscal expansion and ECB pause in H1, reaching 1.23 by Q2. Gains reverse in H2 as US growth re-accelerates and rate differentials shift back. Net flat for the year but volatile path.