Morgan Stanley, one of the few remaining dollar supporters, lowered its forecast for the dollar, citing a fall in Treasury yields. following the Federal Reserve’s accommodative turn.
The bank changed its outlook for the dollar from bullish to neutral, but said seasonality and short selling could still fuel further gains. The bank has been betting on a stronger dollar since at least mid-November and The dollar spot index was previously forecast to strengthen by about 8 percent. from the current level in the second quarter.
Hedge funds and banks, including Goldman Sachs Group, turned bearish on the dollar in December after Federal Reserve Chairman Jerome Powell signaled a change in position towards lower interest rates this year. The dollar index subsequently fell to a five-month low before rising in the first four days of January.
“Our confidence in the dollar’s strength has weakened significantly,” strategists including David Adams wrote in a note published Jan. 4. “The slowdown in US data has narrowed the growth gap, interest rates fell further compared to peers and investors, judging by stock returns, are far from protected.”
Fidelity International, JPMorgan Chase & Co. and HSBC Holdings Plc were among a minority of money managers who went against consensus in December, warning that the dollar would surprise stronger in 2024 as the U.S. economy performs better. Most analysts surveyed Bloomberg expect the dollar to weaken.
Morgan Stanley also closed its short recommendation on the euro-yen, offering investors instead, go short between the euro and the yen. The bank forecasts that the yen will strengthen as US rates fall and that the euro will fall as the eurozone economy continues to weaken.
“Gloomier dollar outlook doesn’t change fundamentals other G3 currencies″supported Adams.