Morgan Stanley Strategists Predict Dollar Decline Amid Interest Rate Cuts

Morgan Stanley strategists predict the US dollar will depreciate in 2025 due to anticipated Federal Reserve interest rate cuts surpassing those by the European Central Bank.

This depreciation is influenced by slowing US growth, uncertain trade policies, and reduced fiscal support, impacting global currency markets and crypto asset valuations.

Fed Actions Point to 10% US Dollar Decline

Morgan Stanley strategists believe the Federal Reserve’s anticipated interest rate cuts will lead to a depreciation of the US dollar. The strategists, including David Adams and James Lord, attributed expected dollar weakness to factors such as slowing economic growth and US policy uncertainty. James Lord stated that “policy uncertainty, such as tariff negotiations,” remains a source of downward pressure on the dollar.

The effects of a declining dollar extend beyond currency markets. According to Morgan Stanley, the euro has gained 11.5% against the dollar recently. The anticipated depreciation is expected to influence capital flows, potentially favoring cryptocurrencies and other risk assets. Mike Wilson noted the dollar might see a 10% drop this year, potentially boosting alternative asset markets.

Market reactions include varied perspectives from financial experts. Andrew Sheets emphasized that the dollar’s 15-year bull cycle has ended, implying prolonged weakness. Meanwhile, other global analysts, including from J.P. Morgan, foresee continued USD weakness throughout the year, influenced by structural and cyclical factors.

David Adams, Head of G10 FX Strategy, Morgan Stanley, – “We’re likely at the intermission rather than the finale. The second act for the dollar’s weakening should come over the next 12 months, as US interest rates and growth converge with those of the rest of the world.”

Crypto Markets Eye Risk Asset Flow Increase

Did you know? The US dollar’s projected decline to 91.00 by mid-2026 is reminiscent of its 11% depreciation in 2025, marking the worst performance since 1973.

Ethereum (ETH) is trading at $4,211.64, with a market cap of approximately $508.34 billion and market dominance at 13.01%, according to CoinMarketCap. Over the past 90 days, Ethereum has seen an 11.68% price increase. Its 24-hour trading volume stands at $40.18 billion, reflecting a 64.82% change.

Coincu research analysts predict that a declining dollar might boost crypto valuations by directing investments toward risk assets. Historical trends suggest pro-cyclical shifts during such periods, favoring Layer 1 and Layer 2 assets like Ethereum. This reflects potential financial and technological outcomes as investors seek alternatives.