Wall Street banks warn of continued U.S. dollar decline as de-dollarization accelerates, driven by global diversification and shifting monetary policies
Major Wall Street institutions are currently predicting that de-dollarization trends will continue to accelerate, and they are also anticipating additional weakness in the US dollar.
Morgan Stanley, JPMorgan Chase, and Goldman Sachs are all reiterating their bearish assessments of the dollar. They attribute the primary factors to President Trump’s trade policies, declining economic growth, and interest-rate reductions.
This global de-dollarization trend is gathering momentum as investors become more concerned about currency diversification risks, and Wall Street’s dollar forecast models are predicting substantial declines shortly.
Dollar Weakness Signaled by Major Banks
Morgan Stanley has made headlines by predicting that the dollar will fall to levels last seen during the COVID-19 pandemic by the middle of next year. Wall Street institutions are becoming more vocal about their concerns regarding de-dollarization.
The bank anticipates that the US Dollar Index will experience a substantial decline from its current levels, with an approximate 9% drop to 91. JPMorgan Chase’s strategists advise investors to place wagers on the yen, euro, and Australian dollar, as they remain bearish on the US currency at the time of writing.
On Monday, the dollar’s decline against its Group of 10 counterparts underscored the apprehensions regarding this global de-dollarization trend. Skylar Montgomery Koning, a currency strategist at Barclays Plc, stated the following:
“Headwinds for the dollar could come in the form of further bond market weakness, an escalation in the trade war, softer US data.”
Goldman Sachs has also expressed additional apprehension, positing that Washington’s endeavors to investigate alternative revenue sources may have a more detrimental impact on the dollar than initially anticipated.
The Wall Street dollar forecast consensus is becoming more pessimistic as more data indicates that the currency will continue to decline.
Currency Reevaluation Is Influenced by Policy
The sentiment toward US assets is negatively impacted by Trump’s trade policies, which is prompting a more comprehensive reevaluation of the global reliance on the dollar. Investors are increasingly aware of the risks associated with currency diversification, and many are beginning to query their substantial exposure to dollar-denominated assets.
At present, the bearishness has not reached extreme levels, which implies a possibility of further dollar weakness in the future, as indicated by data from the Commodity Futures Trading Commission. Morgan Stanley strategists, including Matthew Hornbach, declared:
After two years of volatility trading within broad ranges, rates, and currency markets have initiated significant trends that will be sustained, resulting in a substantial decrease in the value of the US dollar and a significant increase in the steepness of yield curves.
Currency Winners and Investment Risks
The concerns about de-dollarization on Wall Street are also driven by potential policy changes that could affect foreign investment in US assets.
Goldman Sachs strategists are currently concentrating on the potential modifications to US tax rates for foreign individuals and companies, which could have substantial implications for dollar demand.
Goldman Sachs strategists, including Michael Cahill and Kamakshya Trivedi, declared:
“Even if the application is relatively narrow, such a tool would exacerbate concerns about risks of US investments, at a time when investors are already looking at shifting cross-asset correlations as a reason to seek greater diversification away from U.S. assets.”
Goldman Sachs reported in a separate report that their models indicate the dollar is approximately 15% overvalued, indicating that it has additional room for decline.
The anticipated decline is likely driven by the reallocation and repricing of global assets, consistent with the broader Wall Street dollar forecast for continued weakness.
Morgan Stanley anticipates that the euro will increase to approximately $1.25 from its present level of $1.1450 next year, and they also expect that the yen will strengthen to 130.
The Federal Reserve is anticipated to implement 175 basis points of interest-rate reductions, further diminishing the dollar’s appeal to international investors.
The increasing consensus surrounding de-dollarization among Wall Street’s leading players reflects the deeper concerns regarding the global de-dollarization trend and the currency diversification risks investors are encountering.
At present, investors are anticipating the release of forthcoming US labor market indicators to provide insight into the potential changes in Federal Reserve policy and the subsequent impact on the dollar’s trajectory.
