Is the Dollar at Its Peak Now?… Global Financial Firms Say "Decline Next Year"

Morgan Stanley "Increased Risk Appetite"

Citi and Others "Global Economy to Rebound Next Year"

Despite the strong trend of the US dollar following Donald Trump's victory in the presidential election, there is growing support for the outlook that the dollar may weaken next year, Bloomberg reported on the 15th (local time).

According to Bloomberg, Morgan Stanley's macroeconomic strategist Matthew Hornbach and chief strategist for foreign exchange and emerging markets James Lord predicted in a recent report that the value of the dollar will fall below its current level by the end of next year.

The upcoming Trump administration's tariff and tax cut policies are fueling inflation, complicating the Federal Reserve's rate cut path, and leading the dollar to a recent strong rally against major currencies. However, Morgan Stanley explained that the most pessimistic scenario for the dollar is being created as the improvement in risk appetite coincides with a decline in real interest rates.

As the relative attractiveness of holding the dollar decreases due to falling real interest rates, the improved investment sentiment is expected to increase demand for non-dollar assets, exerting downward pressure on the dollar's value.

Daniel Tobon, a strategist at Citi, predicted that decisions under Trump's second administration that could lead to a potential trade war will disappoint speculative forces betting on a strong dollar. These speculative forces have built dollar-buying positions on the expectation that Trump's trade policies will inherently support a strong dollar, but this sentiment could reverse if actual policies are implemented.

Sophia Drossos, a strategist at Point72 Asset Management, analyzed that optimism about the dollar is already largely reflected in prices, and if growth recovers in regions outside the US, such as Europe, it will act as downward pressure on the dollar. Drossos mentioned the rate-cutting moves by the European Union or the Bank of England, stating, "There are foundational elements that could strengthen the global economy next year."

Reporter Song Jong-hyun scream@hankyung.com