Morgan Stanley’s US dollar forecast is actually showing some pretty concerning signs for 2025 and beyond, with analysts predicting the greenback could lose up to 9% of its value over the next twelve months. Right now, this Morgan Stanley US dollar forecast suggests the currency might drop to levels we haven’t seen since the Covid-19 pandemic hit. The latest Morgan Stanley US dollar forecast points to turbulence ahead, but the bank isn’t calling for a complete collapse of the dollar’s dominance.
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Why Morgan Stanley Is Bearish And What It Means For The Dollar
Rate Cuts Are Being Expected to Drive Dollar Weakness
Morgan Stanley is bearish on the US dollar mainly because of what the Federal Reserve is expected to do with interest rates. The bank thinks we’re going to see around 175 basis points of rate cuts. That typically makes currencies weaker since investors can’t earn as much from holding them. This Morgan Stanley bearish on US dollar stance is being shared by other major banks too, and it’s creating quite a bit of uncertainty right now.
At the time of writing, the US dollar 2025 outlook is being shaped by these monetary policy expectations. Matthew Hornbach along with other strategists stated:
“We think rates and currency markets have embarked on sizeable trends that will be sustained — taking the US dollar much lower and yield curves much steeper — after two years of swing trading within wide ranges.”
Trade Policy Is Actually Adding More Pressure
The US dollar 2025 outlook has been getting more complicated because of President Trump’s trade policies. The currency has already been hit pretty hard, dropping nearly 10% since February. This US dollar 2025 outlook suggests there’s more volatility coming our way.
Currency Hedging Trends Are Picking Up Speed
International investors are really ramping up their currency hedging trends right now. These currency hedging trends show that people are getting worried about sustained dollar weakness, and currency hedging trends are expected to get even stronger as more institutions try to protect themselves.
The Reserve Status Isn’t Going Anywhere Yet
Even though the dollar is facing some challenges, the dollar reserve currency status is still holding up. Morgan Stanley’s analysis suggests that the dollar reserve currency status will survive this rough patch. However, the dollar reserve currency status might see some erosion in global finance over time.
The euro is being projected to rise to around 1.25 from its current 1.13 level. At the same time, the yen could strengthen from 143 to 130 per dollar. The pound might also advance from 1.35 to 1.45, helped by high carry returns and relatively low trade tension risks.
Market Impact And What’s Coming Next
Morgan Stanley expects Treasury yields to hit 4% by the end of this year before declining significantly in 2025. This timeline supports their broader view that we’re going to see sustained weakness in the dollar throughout the forecast period.
Also Read: Morgan Stanley Sees India Leading BRICS Global Growth Through 2026
The bank’s 2025 midyear outlook suggests the global economy will slow down but avoid a recession, with markets staying choppy but not completely falling apart. Some analysts are even saying this could be a good time for other currencies to gain ground against the dollar.