A team of macro strategists at Morgan Stanley has become the latest on Wall Street to turn skeptical of the U.S. dollar’s chances for continued appreciation in 2025.
In commentary authored by Morgan Stanley’s global macro strategy and U.S. economics team that was shared with MarketWatch on Friday, the team said they expected the 12-month inflation rate to fall when January PCE data, the Fed’s preferred inflation gauge, are published next month.
That could open the door to another Fed interest-rate cut in March, the team said.
“The anticipated post-election move higher in Treasury yields gave investors the dip we looked to buy. Move overweight duration: buy 5-year US Treasuries,” the team said.
As a result, the team has recommended that investors consider buying more Treasury duration — starting with 5-year notes — and betting against the U.S. dollar against several major currency rivals like the euro, Japanese yen and British pound.
The team also recommended selling 10-year TIPS, or Treasury inflation-protected securities, on a breakeven-inflation basis.
One notable caveat: the team still expects the Chinese yuan to continue weakening against the dollar. Because of this, it recommended staying long call spreads on the dollar-offshore yuan currency pair.
Earlier this week, strategists at UBS Wealth Management said they expected 2025 to be a year of “two halves” for the dollar, with the buck likely to weaken in the second half of the year. Many others on Wall Street expect the dollar to continue to appreciate as the incoming Trump Administration is expected to pursue aggressive trade policies.
