US Dollar Index Drops Below 99: Why Goldman, Morgan Stanley, and JPMorgan All Say It's Getting Weaker

What You'll Learn

• Why the DXY has fallen below 99 — the three forces driving dollar weakness in 2026
• What Wall Street's biggest banks predict — Goldman Sachs, Morgan Stanley, and JPMorgan forecasts
• How the Iran war is reshaping dollar-oil dynamics — and why the correlation matters for your portfolio
• What dollar weakness means for gold, commodities, and foreign investments — actionable insights for investors

The Dollar's Decline: What's Driving the US Dollar Index Below 99?

The US Dollar Index (DXY) fell to 98.98 on May 28, 2026 — down 0.22% from the previous session and significantly below the 100 level that many analysts considered a psychological floor earlier this year. For context, the DXY measures the dollar's value against a basket of six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. A reading below 99 signals that the dollar has lost meaningful ground against its peers.

This isn't a one-day event. The dollar has been in a sustained downtrend throughout 2026, driven by a convergence of three powerful forces: Federal Reserve policy expectations, geopolitical disruption from the Iran war, and Trump administration trade policies that have rattled international investors. The result is a dollar that's weaker than it's been in years — and every major Wall Street bank expects it to get weaker still.

The timing matters because the dollar's value ripples through virtually every aspect of the American economy. A weaker dollar makes imported goods more expensive, pushes up the price of gold and oil, changes the calculus for international investors, and even affects whether foreign tourists find the US affordable. Understanding why the dollar is falling — and what comes next — is essential for anyone with money in US markets.

Three Forces Pushing the Dollar Lower in 2026

1. Federal Reserve Rate Expectations

The Federal Reserve currently holds its benchmark interest rate at 3.50% to 3.75%, where it has remained after the central bank held steady in its January and March 2026 meetings. But markets are pricing in the probability of future rate cuts, which directly undermines the dollar's yield advantage. When investors expect US interest rates to fall, they move money to currencies where returns are relatively higher — typically the euro, yen, or pound.

Goldman Sachs Research has forecast two more cuts from the Fed, which would leave interest rates at 3% to 3.25%. That's a significant shift from the peak of 5.25% to 5.50% seen in 2023, and it signals to currency markets that the era of peak US rates is firmly in the rearview mirror. The dollar's yield premium over the euro and yen has been shrinking all year, and that trend is expected to continue.

2. The Iran War and Oil Price Shock

The US-Iran conflict, which began in February 2026, has fundamentally altered the dollar's relationship with oil prices. The Strait of Hormuz — through which roughly 20% of the world's oil passes — has been effectively disrupted, pushing crude prices to extraordinary levels. Bloomberg reported that the dollar and oil are now trading in lockstep, a departure from the traditional inverse relationship where a weaker dollar usually corresponds with higher oil prices.

Wood Mackenzie told Reuters that current Gulf supply losses could push oil to $150 per barrel, with $200 not impossible. Aramco warned on March 10 that sustained disruptions could trigger an energy crisis. For the dollar, this creates a paradox: higher oil prices typically reflect global demand strength (which should support the dollar), but in this case, they're driven by supply disruption and geopolitical risk — factors that erode confidence in the dollar as a safe haven.

3. Trump Tariffs and Trade Policy Uncertainty

The Trump administration's tariff policies have been a persistent headwind for the dollar. The New York Times reported that the dollar fell roughly 8% in 2025, with a particularly steep decline following tariff announcements. The tariffs create uncertainty about US trade relationships, raise costs for American importers, and push foreign investors to diversify away from dollar-denominated assets.

The Atlantic Council noted that in January 2026 alone, the dollar fell another 1.2%, continuing a trend that many analysts attribute directly to trade policy. When the world's largest economy starts imposing barriers on its trading partners, those partners have less reason to hold dollars — and less incentive to trade in dollars for their transactions.

Wall Street's Bearish Forecasts: What the Big Banks Predict

The consensus on Wall Street is remarkably unified: the dollar is going lower. Here's what the three largest US investment banks are telling their clients about the dollar's trajectory through 2026 and beyond.

Morgan Stanley's forecast is particularly striking. Their analysts expect the dollar to decline an additional 10% from current levels by the end of 2026, before staging a recovery in 2027. That would put the DXY somewhere in the low 90s — a level not seen since the early 2020s. The bank cited accelerating global de-dollarization, Fed policy divergence from other central banks, and persistent geopolitical disruption as the primary catalysts.

Goldman Sachs' "Different Dollar Downside" report echoed these themes, noting that the dollar's decline is being driven by structural forces rather than temporary factors. The Economist magazine put it bluntly in a February 2026 analysis: "Why the dollar may have much further to fall" — arguing that a weaker dollar will reduce the weight of American assets in global indices, forcing benchmark-hugging investors to sell them.

This creates a self-reinforcing cycle: as the dollar falls, global index funds rebalance toward non-US assets, which further weakens the dollar, which triggers more rebalancing. It's a dynamic that could persist for months if the structural drivers — Fed cuts, tariff uncertainty, and Iran war disruptions — remain in place.

The Iran War Connection: How Oil Is Reshaping the Dollar

The relationship between the US dollar and oil prices has undergone a dramatic transformation since the Iran war began. Historically, the dollar and oil prices moved in opposite directions — when the dollar weakened, oil became cheaper for holders of other currencies, increasing demand and pushing prices higher. But the Iran war has broken this traditional correlation.

Bloomberg reported in April 2026 that the dollar and oil are now trading in lockstep, with both rising and falling together in response to developments in the conflict. This is unusual and significant because it suggests that the market is treating the dollar less as a safe haven and more as a commodity-linked currency — a status typically associated with oil-producing nations like Canada or Norway.

The Dallas Federal Reserve published a research paper in 2026 quantifying the inflationary impact of the oil price shock caused by the Iran war. Their analysis showed that the surge in oil prices has added significant upward pressure to consumer prices, particularly for gasoline and food. Gasoline prices hit a national average of $4.59 per gallon in early May — a record for 2026 — before settling back to $4.42 by May 28.

For the dollar, this creates a challenging environment. The oil-driven inflation complicates the Fed's rate-cutting plans (hotter inflation means the Fed may delay cuts), while the geopolitical risk factor pushes investors toward traditional safe havens like gold and the Swiss franc rather than the dollar itself. The result is a dollar that's caught between opposing forces — and losing ground on balance.

What Dollar Weakness Means for Your Portfolio

The dollar's decline has direct, measurable consequences for investors across multiple asset classes. Understanding these relationships can help you position your portfolio for what's coming.

Gold: The Biggest Winner

Gold has been one of the primary beneficiaries of dollar weakness. The precious metal surged to record highs above $5,600 per ounce in January 2026 and has traded above $4,600 in recent months. The inverse relationship between gold and the dollar is one of the most reliable correlations in financial markets — when the dollar falls, gold becomes cheaper for holders of other currencies, increasing global demand.

MarketPulse reported that gold has hit $5,000 as the dollar dropped toward 97, with analysts attributing the move to the "debasement trade" — a bet that government spending and money printing will continue to erode the dollar's purchasing power. For investors who haven't yet added gold exposure, the current dollar weakness trend suggests the metal's rally may have further room to run.

Foreign Stocks and International Diversification

A weaker dollar automatically boosts the value of foreign investments when measured in USD. If you hold European, Japanese, or emerging market stocks, those positions gain value simply because the dollar is declining — even if the underlying stock prices remain flat in local currency terms. US Bank noted that in 2025, the dollar's decline lifted returns for many US investors with foreign holdings.

This is why JPMorgan's bullish stance on the euro matters. If the euro reaches $1.23 as UBS predicts, European stocks and bonds become significantly more valuable for American investors. The dollar's weakness is essentially a tailwind for international diversification — a strategy that many US investors have underutilized for years.

Commodities and Import-Exposed Sectors

Commodities priced in dollars — oil, copper, agricultural products — tend to rise when the dollar falls. This benefits commodity producers but hurts consumers and importers. For US consumers, a weaker dollar means higher prices at the pump and higher grocery bills, compounding the inflationary pressure already being driven by the Iran war's impact on energy and food supply chains.

The De-Dollarization Debate: Is the Reserve Currency Status Fading?

One of the most significant long-term implications of the dollar's decline is the growing conversation about de-dollarization — the idea that countries and institutions are gradually reducing their dependence on the US dollar as the world's primary reserve currency.

Morgan Stanley identified accelerating de-dollarization as one of the key drivers of their bearish dollar forecast. The Atlantic Council noted that the dollar's exchange value fell 1.2% in January 2026 alone, continuing a trend that suggests central banks around the world are diversifying their reserves away from dollar-denominated assets.

This doesn't mean the dollar is about to lose its reserve status — that would require a fundamental shift in global trade infrastructure that would take decades. But it does mean that the dollar's dominance is being gradually eroded. Countries like China, Russia, and Saudi Arabia have been actively promoting alternatives to dollar-denominated trade, and the Iran war has accelerated this trend by demonstrating the risks of holding assets in a currency that can be weaponized through sanctions.

For American investors, de-dollarization is a slow-moving but important trend. It suggests that the dollar's structural advantage — the "exorbitant privilege" of being the world's reserve currency — may be gradually diminishing, with implications for US borrowing costs, asset valuations, and the long-term purchasing power of dollar-denominated savings.

Technical Analysis: Where Does the DXY Go From Here?

From a technical perspective, the DXY is testing critical support levels. The index has been holding above a major support region near 96.20, which analysts at OneUpTrader identified as a key floor. The 52-week moving average currently sits around 98.90, and the DXY is trading right at this level — a decisive break below would signal further downside.

Forex.com's technical analysis noted that the DXY has rebounded from major support, with the May opening range intact just above current levels. However, the index is now testing the 52-week moving average from below — a bearish signal that suggests the path of least resistance is lower. The 2026 yearly open at 98.24 provides the next support level, with a break below targeting the 96.20 region.

The longer-term picture is even more concerning for dollar bulls. LongForecast's projections show the DXY potentially falling into the low 90s by the end of 2026, with further weakness projected into 2027. Morgan Stanley's 10% decline forecast aligns with these technical projections, suggesting that the current weakness is not a temporary dip but part of a sustained downtrend.

Conclusion: The Dollar's Weakness Is a Feature, Not a Bug

The US Dollar Index trading below 99 is not an anomaly — it's the result of structural forces that are expected to persist through 2026. The Federal Reserve's shift toward rate cuts, the Iran war's disruption of global energy markets, and the Trump administration's tariff policies are combining to create a dollar environment that's fundamentally different from the strong-dollar era of 2022-2024.

For investors, the message from Goldman Sachs, Morgan Stanley, and JPMorgan is clear: position for continued dollar weakness. That means increasing exposure to gold, diversifying into international assets, and being aware that import-exposed sectors will face margin pressure. The dollar's decline is reshaping the investment landscape in real time, and those who understand the dynamics will be better positioned to capitalize on the opportunities — and avoid the pitfalls — of a weaker greenback.

The de-dollarization trend, while gradual, represents a structural shift in how the world thinks about the dollar's role. For now, the dollar remains the world's reserve currency — but its dominance is being tested in ways it hasn't been in decades. The question isn't whether the dollar will get weaker — Wall Street has already answered that. The question is how much weaker it will get, and whether the recovery Morgan Stanley predicts for 2027 will materialize.

Last Updated: May 29, 2026 | Source: Reuters (Official Website), Trading Economics, Morgan Stanley

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