Morgan Stanley strategists say a “silent plurality” of investors are quietly positioned to short the U.S. dollar, even as outspoken dollar bulls dominate current market commentary.
The team warns that meaningful downside pressure on the dollar could materialize from several sources: March inflation figures that might support Federal Reserve rate cuts, ongoing congressional fiscal negotiations, and a trade policy that proves more moderate than markets currently expect.
Morgan Stanley’s bearish projection calls for the US Dollar Index to drop to 105 by the end of the first quarter and to 101 by year-end — notably below consensus median forecasts of about 108.7 and 106.9, respectively.
Though the dollar has recently gained against many major currencies, especially those seen as vulnerable to U.S. tariff actions, it has lost 1.6% this week after former President Trump signaled a softer approach to tariffs on China.
Strategist David Adams at Morgan Stanley recommends shorting the dollar versus the euro, yen and sterling. He suggests that many investors aren’t yet convinced on direction but are instead waiting for the right timing to build short positions.
