Morgan Stanley: U.S. dollar may fall 9% next year, falling back to coronavirus lows

According to Bloomberg, strategist Matthew Hornbach and others pointed out in a May 31 report that the US dollar index is expected to fall to 91 points in the same period next year. The report said that due to the impact of trade frictions, interest rates and money markets have entered a new and continuous trend, the US dollar will weaken further, and the yield curve will become steeper.

During the early trading session of Asian trading on Monday (June 2), the US dollar fell against a number of major currencies, and the Bloomberg dollar index fell about 0.2%.

Morgan Stanley's view is consistent with the market's overall view on the dollar outlook.

JP Morgan strategists team also expressed a bearish position last week and recommended investors to turn to currencies such as the Japanese yen, euro, and Australian dollars.

Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that the market's bearish sentiment towards the US dollar is far from reaching historical extremes, and the US dollar may weaken further in the future.

Morgan Stanley expects the euro to rise to 1.25 against the dollar next year, and is currently about 1.13; the pound may rise from 1.35 to 1.45, benefiting from higher currency spreads and lower trade risks in the UK; the dollar to yen exchange rate is expected to fall from about 143 to 130. Morgan Stanley also predicts that the yield on 10-year U.S. government bonds will fall to 4% this year and fall sharply next year as the Fed expects a rate cut of up to 175 basis points.

Morgan Stanley predicts that due to the slowdown in U.S. economic growth and interest rate cut measures, the dollar exchange rate will fall by about 9% by mid-2026, returning to the lows during the coronavirus pandemic. Previously, the US dollar index had fallen nearly 10% from its February high.