Amidst a rapidly shifting global economic landscape, investors worldwide are focusing their attention on the US dollar’s trajectory for 2025. In a recent report, Morgan Stanley has sounded the alarm for turbulence ahead—projecting that the greenback could lose up to 9% of its value over the next twelve months. While analysts stop short of forecasting a full collapse, the implications for global markets, especially for iXbroker clients trading Forex and crypto, are profound.
Why Is Morgan Stanley Turning Bearish on the Dollar?
Morgan Stanley’s latest dollar outlook pivots primarily on expectations surrounding the Federal Reserve’s monetary policy. The bank’s strategists anticipate about 175 basis points of interest rate cuts in the upcoming year. For context, rate cuts generally erode a currency’s value as returns on dollar-denominated assets diminish, making the greenback less attractive to both domestic and international investors.
Matthew Hornbach, Morgan Stanley’s lead strategist on rates and currency, emphasizes,
“We think rates and currency markets have embarked on sizeable trends that will be sustained—taking the US dollar much lower and yield curves much steeper—after two years of swing trading within wide ranges.”
This view is being echoed by other major banks, leading to a rare consensus: US dollar weakness looks set to define markets in 2025.
Trade Policy: The Second Shoe Drops
While monetary policy is the main driver, US trade policy is exacerbating the dollar’s challenges. President Trump’s recently re-imposed tariffs and shifting international agreements have already shaved nearly 10% off the dollar’s value since February. For global traders and emerging market economies, this means wider swings, less predictability, and higher risk premiums on dollar-based investments.
As the dollar falls, Morgan Stanley projects significant movement from global investors. Currency hedging is becoming the name of the game—a clear signal that institutional players are bracing for ongoing volatility.
Is the Dollar’s Reserve Status at Risk?
Despite acute weakness, the US dollar’s reserve currency status remains (for now) unchallenged. According to Morgan Stanley, central banks and sovereign wealth funds are not about to discard the world’s most traded currency. However, the bank cautions that repeated episodes of dollar volatility and devaluation will erode confidence, opening space for the euro, yen, and even digital assets to claim a larger slice of global reserves.
Their projections for 2025 include:
- Euro: Could climb to 1.25 from its current 1.13 against the dollar.
- Japanese Yen: Strengthening from 143 to 130 per USD.
- British Pound: Advancing from 1.35 to 1.45, buoyed by strong carry returns and less trade tension.
iXDeep: Market Implications for Forex and Crypto
For Forex:
A pronounced US dollar slump alters risk-reward calculations across the board. EUR/USD, GBP/USD, and USD/JPY traders should prepare for persistent trends rather than short-term whipsaws. Countries with rising rates are likely to see their currencies outperform, intensifying carry trade flows. Expect more hedging activity and increased volatility in emerging market currencies, as the dollar’s former “safe haven” status becomes less secure.
For Crypto:
Crypto markets often respond positively to a weakening dollar, as investors seek alternative stores of value. Bitcoin, Ethereum, and select altcoins could benefit from renewed institutional interest, especially if concerns about fiat depreciation spark capital inflows. A bearish dollar narrative may also encourage further experimentation with stablecoins and central bank digital currencies (CBDCs) as nations diversify their reserves away from the greenback.
What’s Next for Dollar Watchers?
Morgan Stanley’s 2025 midyear outlook isn’t entirely gloomy: the bank expects the global economy to slow but not crash, with US Treasury yields peaking at 4% before trending downward as rate cuts take effect. This environment, though turbulent, will not necessarily breed panic—it might foster opportunities, especially for agile traders who understand how currency flows influence the wider ecosystem.
For iXbroker clients, the message is clear: prepare for a year of sharp moves, both risks and rewards. Staying updated, applying robust risk management, and watching for inflection points could make all the difference in navigating what’s shaping up to be an exciting year for Forex and crypto trading.
