The U.S. dollar may be heading into a period of extended weakness, and that could spell good news for equities, according to Morgan Stanley’s chief investment officer, Mike Wilson.
Speaking in a recent Bloomberg Television interview, Wilson outlined the bank’s outlook for the second half of the year, predicting a further slide in the greenback’s value—potentially as much as 10%. If the forecast plays out, the resulting shift could fuel another leg up for the S&P 500 and other risk assets into 2026.
Morgan Stanley’s bearish stance on the dollar is closely tied to expectations that the Federal Reserve will begin slashing interest rates next year.
The firm anticipates as much as 175 basis points in rate cuts, which Wilson believes would trigger the full extent of the projected currency decline. But even a more modest pace—say, 100 basis points—would still likely push the dollar lower, he said.
Wilson pointed to global monetary policy divergence as another key driver. Central banks in Europe and Japan are less likely to loosen policy aggressively, leaving their currencies relatively stronger compared to the dollar. He highlighted the Japanese yen, euro, and British pound as major beneficiaries in this scenario.
The takeaway from Morgan Stanley’s mid-year update is clear: as the dollar loses ground, risk assets could find fresh momentum, particularly if the Fed starts turning dovish.
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