JP Morgan Chase: The dollar is expected to weaken in 2026, but the Federal Reserve's interest rate hike risk may shake that view

JPMorgan's team of currency strategists, led by Meera Chandan and Arindam Sandilya, had predicted that the dollar would strengthen after Trump became president this year, but had to quickly adjust its view as the dollar performed at its worst in 50 years in the first half of the year. The team's view on the dollar turned negative in March and has maintained that stance to this day. Strategists now expect the dollar to fall by about 3% by mid-2026 before stabilizing. However, analysts note that several major factors complicate the bank's bearish view. First, despite the Federal Reserve's recent rate cuts, US interest rates remain higher than many other global central banks. This has made global investors more inclined to keep their money in the US and limited the appeal of diversifying into assets outside the US, they say. More broadly, the risk that JPMorgan is watching is that a rebound in the US jobs market or growth expectations could prompt traders not only to rule out a rate cut next year, but also to increasingly up their bets on a potential rate rise. "2026 is net bearish on the dollar, albeit by less magnitude and breadth than 2025," Chandan and colleagues wrote.