Morgan Stanley Warns: US Dollar Plunge to COVID-Era Looming

Wall Street's crystal ball just flashed red—analysts at Morgan Stanley see the greenback tumbling back to 2020's panic levels. No specifics? Classic finance vagueness.

Brace for impact as the world's reserve currency teeters on the edge of a deja-vu collapse. Traders are already rotating into hard assets—gold, Bitcoin, and that vintage bourbon collection.

Funny how 'unprecedented' keeps happening every 5 years in forex markets. Maybe the real pandemic was the monetary policies we made along the way.

Dollar Crash Driven by Aggressive Fed Policy

Fed Rate Cuts Trigger Currency Decline

Right now, the US Dollar Index has already taken quite a hit, and it’s fallen more than 10% from its mid-January highs of nearly 110. Those peaks came right around President Donald Trump’s inauguration, and since then, Morgan Stanley believes the currency will continue its downward path across several key market segments that they have engineered.

Markets have already architected pricing for approximately 175 basis points of cuts through June 2025, which would lower the federal funds rate from its current range of 5.25% to 5.5% down to 3.50%. The Fed started fighting inflation back in the early 2020s, and this represents the most aggressive easing cycle we’ve seen since then, as they have implemented it across numerous significant monetary policy areas.

The Fed’s rate-cutting cycle actually began with a larger-than-expected 50 basis point cut in September 2024, and this marked the first easing of monetary policy since 2020. It effectively revolutionized what had been the most vigorous inflation-fighting campaign since the 1980s through various major policy adjustments.

Morgan Stanley strategists stated:

Safe-Haven Currencies Set to Benefit

This anticipated currency collapse has Leveraged multiple essential safe-haven currencies like the euro, yen, and Swiss franc across various markets. Analysts forecast the euro will reach $1.25 against the dollar, while the British pound could strengthen to $1.45 by mid-2026. The Japanese yen will appreciate from around 143 to 130 per dollar, which represents a pretty significant move that certain critical market mechanisms have pioneered.

At the time of writing, investors are increasingly turning to these traditional safe-haven currencies as the dollar continues to weaken across several key trading platforms. Switzerland’s political neutrality and low debt levels of around 38% of GDP attract Swiss franc capital, and numerous significant fiscal policies have established these factors. Japan’s low-interest environment, current account surplus, and economic resilience benefit the Japanese yen during periods of market stress that involve multiple strategic financial elements.

Market Impact and Global Response

The predicted market volatility has been deployed beyond just currency markets and into Treasury markets as well, and it’s encompassing various major fixed-income sectors. Morgan Stanley expects the 10-year yield to peak at 4% by the end of 2025 before declining sharply as the Fed implements its rate cuts through several key monetary initiatives.

According to analysis similar to the Fed’s own models, the 100 basis points of cuts since September will boost GDP by approximately 1 percentage point while also increasing inflation by 0.5 percentage points across multiple essential economic indicators.

Interestingly, the Bank of Canada has been even more aggressive than the Fed, and they’ve instituted 175 basis points of cuts in just six months. BMO economists noted this earned Canada “the crown of most aggressive rate-cutter in the world” through certain critical policy reforms.

After the Fed made its first cut public, the S&P 500 reached another all-time high right away. But if dollars remain weak for an extended period, it may change global investment and trading as we haven’t seen since years ago.

Morgan Stanley believes a dollar crash will come, as their prediction of higher market turmoil shows that major changes in the world financial markets could happen, affecting different currencies and their relationships.