The US dollar future in 2026 suggests a weaker trend with volatility ahead, and investors are watching the dollar index outlook 2026 closely for signs of upside spikes. Right now, as of early January 2026, the US Dollar Index (DXY) is trading near 98, which is actually close to multi-month lows. The US dollar forecast 2026 reflects shifting expectations around Federal Reserve rate cuts, along with improving conditions outside the US. Most forecasts are pointing to a softer dollar as US interest rates get gradually cut, yet short-term rebounds remain quite possible—particularly if inflation proves sticky or if global markets turn cautious. The question of will the dollar fall in 2026 comes with an answer that’s somewhat nuanced: gradual downside is expected with real USD volatility 2026 ahead.
US Dollar Forecast 2026, Dollar Index Outlook And Volatility Risks
Fed Policy Drives US Dollar Future 2026
David Adams, who is the head of G10 FX Strategy at Morgan Stanley, had this to say:
“The October Federal Reserve meeting reinforced a perception that U.S. rates are unlikely to decline as much or as quickly as previously anticipated.”
The Fed has already shifted from what was restrictive policy to a more cautious easing cycle, and economists expect rates to drift toward the low-to-mid 3% range by late 2026. Even after the Fed makes cuts, US rates will still likely stay above the ECB at around 2%, and also above the Bank of England at 2–3%.
This yield advantage should actually limit how far the US dollar future 2026 declines, especially during periods of market stress and uncertainty. How quickly, and also how far, the Fed cuts rates this year will determine the dollar index outlook 2026.
When Will The Dollar Fall In 2026
The US dollar forecast for 2026 suggests the currency could fall to around 94 in the second quarter before it recovers. Morgan Stanley Research notes that the U.S. dollar index, which is currently around 100, could fall to 94 in Q2 2026 and then rise back to 100 by year-end. Cornell economist Eswar Prasad stated:
“Logically, the dollar ought to weaken, because it looks like there will be economic as well as political pressures in the U.S. to cut interest rates, while at the same time other major central banks could be moving in the other direction.”
However, Gary Schlossberg at Wells Fargo Investment Institute offered a contrasting view:
“We still think the dollar will be steady to slightly firmer.”
This shows that even among experts, the question of will the dollar fall in 2026 doesn’t have a completely unanimous answer.
USD Volatility 2026 And Rebound Risk
Meera Chandan from J.P. Morgan explained the US dollar future 2026 dynamics:
“The risks on balance, if we do get a large move, I think is skewed to the downside.”
She also added:
“At least in the early part of the year, the Fed will either keep rates unchanged for a long period of time, or they’re going to cut a lot, either for data-driven reasons, or perhaps if political pressures start to mount.”
Most bank forecasts are clustering around GBP/USD 1.36–1.40 during 2026, with some upside risk if the dollar weakens more quickly than expected. The question of will the dollar fall in 2026 depends heavily on inflation data surprises, along with Fed signals. Late Q1 to Q2 2026 actually represents the most likely window for the dollar to strengthen again, which is creating significant USD volatility 2026 for traders and businesses that are managing dollar exposure.