Dollar Faces Deep Decline as Fed Cuts Pressure Currency, Warns Morgan Stanley

Morgan Stanley has issued a cautionary outlook on the U.S. dollar, predicting a major decline over the coming year as Federal Reserve rate cuts take hold.

The bank expects the U.S. Dollar Index to fall by as much as 9%, potentially sliding to levels not seen since early pandemic lows.

Strategists say the shift is being driven by the Fed’s aggressive easing path—markets are pricing in a full 175 basis points in cuts by mid-2025. The rate-slashing cycle, which began with a surprise 50 basis point cut in September 2024, signals a sharp reversal from years of hawkish policy.

This dollar retreat is already reshaping global currency flows. Safe-haven assets such as the euro, yen, and Swiss franc are gaining traction as investors seek shelter. Forecasts suggest the euro could reach $1.25, while the pound and yen are expected to strengthen significantly.

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Morgan Stanley also projects spillover into bond markets, with 10-year Treasury yields peaking at 4% before falling again as monetary policy loosens. Though lower rates could boost short-term GDP and spur inflation slightly, the bank warns of broader instability if the dollar slide accelerates.

Outside the U.S., other central banks are moving swiftly—Canada has already cut rates by 175 basis points, becoming one of the most aggressive responders globally. As global monetary dynamics shift, a weakened dollar could lead to major structural changes in global trade and capital markets.

Alexander Stefanov

With over 8 years of experience in the cryptocurrency and blockchain industry, Alexander is a seasoned content creator and market analyst dedicated to making digital assets more accessible and understandable. He specializes in breaking down complex crypto trends, analyzing market movements, and producing insightful content aimed at educating both newcomers and seasoned investors. Alexander has built a reputation for delivering timely and accurate analysis, while keeping a close eye on regulatory developments, emerging technologies, and macroeconomic trends that shape the future of digital finance. His work is rooted in a passion for innovation and a firm belief that widespread education is key to accelerating global crypto adoption.