Morgan Stanley’s dollar forecast signals the end of the greenback’s 15-year dominance, and analysts are predicting a structural shift toward falling US dollar trends right now. The investment bank’s bearish Morgan Stanley dollar forecast comes as economic headwinds mount, and the dollar bull run faces unprecedented challenges along with various policy uncertainties. This actually represents a major departure from US exceptionalism that has driven the dollar bull run since 2010, even as markets were expecting continued strength.
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Euro Strength Rises as Dollar Bull Run Nears Collapse
Structural Shift in Currency Markets
James Lord, Morgan Stanley’s Chief Global FX Strategist, outlined the firm’s contrarian Morgan Stanley dollar forecast at the year’s beginning, and the consensus was expecting continued US exceptionalism following Trump’s election. However, Morgan Stanley anticipated different outcomes based on their analysis.
Lord stated:
“From 2010 all the way through to the end of last year, the dollar has been on a tear.”
The falling US dollar trend is being driven by immigration restrictions, lack of fiscal stimulus, and also trade tariff implementation. Lord emphasized that the US faces a 4 percent GDP current account deficit in a slowing growth environment, which makes continued dollar strength increasingly difficult to sustain right now.
Federal Reserve Policy Accelerates Decline
The Morgan Stanley dollar forecast has already exceeded initial targets, and this has prompted the firm to extend projections in their midyear outlook. Lord noted they may even reach their bull case target of euro-dollar at 1.30, marking a significant shift from the previous dollar bull run dynamics.
Lord explained:
“We may even have to go towards the bull case target of euro-dollar of 130.”
At the time of writing, Morgan Stanley US economics research expects the Fed to cut rates to 2.5 percent, which will further pressure the falling US dollar. This dovish pivot actually represents a dramatic departure from previous monetary policy and continues to undermine the dollar bull run that dominated markets for over a decade.
European Market Impact
Marina Zavolock, Morgan Stanley’s Chief European Equity Strategist, has analyzed how the falling US dollar affects European equities, and her research reveals that more than half of the European index faces negative exposure to euro strength. Only about 30 percent benefits from these currency movements right now.
Zavolock stated:
“They’re breaking to new highs almost on a daily basis relative to the index.”
The sectors benefiting from this shift include utilities, real estate, and banks, which have strongly outperformed as the Morgan Stanley dollar forecast materializes. Companies with advanced hedging programs demonstrate better performance along with lower volatility compared to those without proper FX risk management.
Zavolock emphasized the importance of currency-adjusted metrics:
“European earnings growth at this point are 7.6 percent in dollar terms.”
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This highlights how the end of the dollar bull run creates opportunities for European companies when measured in dollar terms, even as local currency performance appears weaker due to translation effects from the strengthening euro and other currencies.