The U.S. dollar has experienced significant weakness throughout much of this year, and UBS anticipates this trend will persist into 2026. The greenback faces structural challenges stemming from slowing U.S. economic growth and ongoing policy uncertainties, according to the bank’s latest analysis.
As of 4:30 a.m. ET, the Dollar Index – which measures the dollar against a basket of six major currencies – dropped 0.4% to 99.595, marking a decline of more than 8% year-to-date. Meanwhile, the euro strengthened, with EUR/USD rising 0.4% to $1.1328, up over 9% so far in 2025.
In recent years, the U.S. economy has outpaced many of its global counterparts, largely thanks to a highly expansionary fiscal approach amid an already robust economy. This has kept Federal Reserve monetary policy relatively tight, while other central banks moved toward easing.
However, UBS analysts highlighted in a May 21 note that shifts are on the horizon. With the new administration pledging to reduce unnecessary spending and redirect savings toward tax cuts, the policy landscape is expected to shift.
“Textbook economics and U.S. political wrangling suggest to us that there will probably be short-term pain before long-term gain, as spending cuts will need to happen first, ahead of any positive impact from tax cuts,” UBS stated.
The bank also forecasts a slowdown in U.S. growth in the coming quarters, noting that “uncertainty could put the brakes on investment decisions.” This combination of factors leads UBS to believe the Federal Reserve will likely resume easing monetary policy later this year.
Simultaneously, fiscal and monetary policies in Europe are evolving. Germany’s decision to lift its debt brake marks a significant fiscal expansion – the largest since reunification – and, combined with increased defense spending, supports UBS’s expectation of eurozone growth above 1% over the forecast period.
“With fiscal stimulus expected to take effect toward the end of this year, we believe the period of monetary easing in Europe will conclude with rates stabilizing around 1.75%,” UBS added.
Highlighting the currency outlook, UBS concluded, “We think the convergence of growth and monetary policy leaves room for EURUSD to move higher. We believe the USD should weaken in the upcoming quarters, and we introduce our end-June 2026 forecast for the EUR/USD at 1.20.”
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