Morgan Stanley Warns: USD Faces 2025 Storm—But Avoids Total Meltdown

The greenback's getting a stress test—and Wall Street's sweating bullets.

Soft landing or controlled crash?

Morgan Stanley's crystal ball shows the dollar dodging apocalyptic collapse in 2025, but brace for turbulence. The currency's caught between hawkish Fed remnants and a rising tide of de-dollarization—with crypto vultures circling overhead.

Betting against the house

While analysts stop short of predicting USD's demise, the report reads like a divorce filing from the exorbitant privilege era. Meanwhile, Bitcoin maximalists are popping champagne—because nothing screams 'hedge' like a volatile asset that mooned during every modern financial crisis.

The dollar's not dead—it's just learning to share the sandbox. And for once, the suits aren't holding all the toys.

Why Morgan Stanley Is Bearish And What It Means For The Dollar

Rate Cuts Are Being Expected to Drive Dollar Weakness

Morgan Stanley is bearish on the US dollar mainly because of what the Federal Reserve is expected to do with interest rates. The bank thinks we’re going to see around 175 basis points of rate cuts. That typically makes currencies weaker since investors can’t earn as much from holding them. This Morgan Stanley bearish on US dollar stance is being shared by other major banks too, and it’s creating quite a bit of uncertainty right now.

At the time of writing, the US dollar 2025 outlook is being shaped by these monetary policy expectations. Matthew Hornbach along with other strategists stated:

Trade Policy Is Actually Adding More Pressure

The US dollar 2025 outlook has been getting more complicated because of President Trump’s trade policies. The currency has already been hit pretty hard, dropping nearly 10% since February. This US dollar 2025 outlook suggests there’s more volatility coming our way.

Currency Hedging Trends Are Picking Up Speed

International investors are really ramping up their currency hedging trends right now. These currency hedging trends show that people are getting worried about sustained dollar weakness, and currency hedging trends are expected to get even stronger as more institutions try to protect themselves.

The Reserve Status Isn’t Going Anywhere Yet

Even though the dollar is facing some challenges, the dollar reserve currency status is still holding up. Morgan Stanley’s analysis suggests that the dollar reserve currency status will survive this rough patch. However, the dollar reserve currency status might see some erosion in global finance over time.

The euro is being projected to rise to around 1.25 from its current 1.13 level. At the same time, the yen could strengthen from 143 to 130 per dollar. The pound might also advance from 1.35 to 1.45, helped by high carry returns and relatively low trade tension risks.

Market Impact And What’s Coming Next

Morgan Stanley expects Treasury yields to hit 4% by the end of this year before declining significantly in 2025. This timeline supports their broader view that we’re going to see sustained weakness in the dollar throughout the forecast period.

The bank’s 2025 midyear outlook suggests the global economy will slow down but avoid a recession, with markets staying choppy but not completely falling apart. Some analysts are even saying this could be a good time for other currencies to gain ground against the dollar.