Morgan Stanley Sees Dollar Falling 9% on Slowing US Growth Bets

Morgan Stanley strategists predict a 9% decline in the dollar by mid-2025, driven by anticipated interest rate cuts and a slowdown in US economic growth. This forecast, detailed in a May 31 note, suggests the dollar could reach levels not seen since the Covid-19 pandemic, potentially intensifying its recent weakening trend amid ongoing trade uncertainties.

Analysis

Morgan Stanley strategists, in a May 31 note led by Matthew Hornbach, project a significant 9% depreciation in a popular gauge of the US dollar by mid-2025 from current levels. This bearish outlook for the dollar, reflecting a strongly negative sentiment, is predicated on expectations of slowing US economic growth and ensuing interest rate cuts by the Federal Reserve. Such a decline would push the dollar to valuations not observed since the Covid-19 pandemic era, potentially amplifying its recent downward trajectory, which has also been influenced by ongoing trade uncertainties. The forecast underscores a considerable downside risk for the greenback over the next twelve months, driven by fundamental shifts in US economic conditions and monetary policy.

Key Decisions for Investors

• Investors should evaluate their US dollar exposure and consider implementing hedging strategies in light of Morgan Stanley's projection of a 9% decline by mid-2025.
• Consider exploring investment opportunities in non-USD denominated assets or currencies poised to strengthen against a weakening dollar, as well as US export-oriented companies that could benefit from a depreciated currency.
• Closely monitor forthcoming US economic data, particularly growth indicators, and Federal Reserve pronouncements on interest rate policy, as these will be key determinants of the dollar's trajectory and the catalysts for the forecasted depreciation.