Investment bank Morgan Stanley (MS) is sounding a cautious note on the U.S. dollar, telling investors it’s time to sell the world’s reserve currency.
Morgan Stanley analyst David Adams says that markets expect the value of the U.S. dollar to continue rising in the foreseeable future compared to rival currencies such as the Euro and British pound.
However, in a note to clients titled “Time to Sell,” Adams takes a contrarian view of the greenback and warns that investors holding U.S. dollars should offload them now.
The Morgan Stanley analyst writes that bullishness surrounding the U.S. dollar is being driven by expectations for more growth from the American economy and new tariffs under the administration of president-elect Donald Trump.
However, Adams states that “much of the ‘good news’ for USD” is already price in, with investors having “largely internalized the ‘US outperformance’” that is driving the currency.
Morgan Stanley’s analyst says that investors might also be “overestimating the speed, breadth and magnitude” of the shifts to U.S. trade policy brought in by Trump’s presidency.
“While trade policy announcements could come relatively quickly, their implementation is likely to be slower and their scope narrower than many investors seem to expect, with trade restrictions largely focused on China,” writes Adams in his report.
The analyst adds that investors should now bet against the U.S. dollar by buying both British pounds and Australian dollars, each of which are less exposed to trade tensions and trading near historical lows.
Specifically, Morgan Stanley says that investors can bet on increases in the British pound and Australian dollar against the U.S. dollar, with price targets of $1.32 U.S. per £1 and AU$ 0.675 per $1 U.S.
Adams adds that he believes most of the “bad news” facing the Euro has already been priced in and that the Eurozone currency is also likely to rise in 2025.
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