The US Dollar Trend: A Significant Decline Forecasted by Morgan Stanley
US currency faces potential significant decline, according to Morgan Stanley's updated market forecast prediction.
Morgan Stanley, a renowned investment bank, predicts that the U.S. dollar is set for a substantial decline as the Federal Reserve prepares to reduce interest rates. The bank's forecast for the dollar's decline, set between 9-10%, extends into 2026, potentially providing a boost to the S&P 500 index.
Mike Wilson, the bank's chief investment officer, articulated their forecast during an interview on Bloomberg Television. Wilson highlighted that this anticipated drop would provide another tailwind for the S&P 500, with the index struggling to correct more than 10%. The decline is primarily driven by expectations that the Federal Reserve may cut rates by 175 basis points next year, which would decrease the attractiveness of dollar assets compared to currencies like the yen, euro, and pound.
The banker, however, acknowledged that if their call on 175 basis points of rate cuts next year proves less correct, the decline would still be significant. According to Wilson, the overall direction of the dollar is south, especially against currencies like the yen and euro, which won't cut rates anytime soon, as well as against the pound, given the limits on rate cuts in a slowdown.
These predictions suggest a weaker dollar will likely support higher valuations in U.S. equities, making them more attractive to foreign investors and boosting earnings for multinational companies. As a result, risk assets overall are expected to gain from the declining dollar.
Morgan Stanley's outlook follows the bank's recent overweighting of US stocks and bonds, motivated by the relatively robust state of the U.S. economy compared to other global economies, despite policy uncertainties and tariff impacts. The combination of a weakening dollar and strong fundamentals provides a favorable setting for US risk assets, with the potential for US equities to rise by 20% by 2026.
Investors should consider the implications of a weakening US dollar, as the envisaged decline and accommodative monetary conditions could create a conducive environment for equities and bonds alike, potentially driving growth in US risk assets.
- The weakening US dollar, as predicted by Morgan Stanley, could create opportunities for investors in cryptocurrencies and altcoins, due to the potential increase in the attractiveness of risk assets.
- With the anticipated decline in the US dollar, the blockchain technology and finance sector might experience growth, as foreign finance influx and earnings for multinational companies could improve, making investing in these sectors more appealing.
