MUFG "Dollar weakness in 2026 could deepen if the Fed expands rate cuts"

On the 7th (local time), according to the economic breaking news channel Walter Bloomberg, there was a forecast that dollar weakness in 2026 could deepen if the size of the U.S. Federal Reserve (Fed)'s rate cuts is larger than expected.

MUFG Bank analysts assessed that if the Fed undertakes aggressive rate cuts, the value of the dollar is highly likely to fall further. They also cited as background for this outlook the recent remarks by Fed Chair Jerome Powell that U.S. employment gains may have been overstated, suggesting the possibility of a slowdown in the labor market.

MUFG explained that if signals of labor market weakening become clear, the Fed could adopt a more accommodative monetary policy, which could put downward pressure on the dollar. It added that the greater the political pressure on the Fed, the more concerns about the central bank's independence could act as a factor for dollar weakness.

Regarding the exchange rate outlook, MUFG forecast that the euro could rise to $1.24 per euro by Q4 2026. This would represent considerable euro strength and dollar weakness from the current level of about $1.1690.

Markets view that the dollar's direction will be determined by future U.S. employment data and the Fed's rate path, and caution over the possibility of dollar weakness in global foreign exchange markets is gradually expanding.