Morgan Stanley Sees Dollar Sliding 6% in 2019 on Growth Concerns

© Reuters. Morgan Stanley Sees Dollar Sliding 6% in 2019 on Growth Concerns

(Bloomberg) — The best days for the dollar this year are over, according to Morgan Stanley (NYSE:).

The greenback is poised to weaken 6 percent through year-end as slowing relative U.S. growth and a dovish Federal Reserve weigh on the world’s biggest reserve currency, strategists led by Hans Redeker wrote in a note Tuesday.

“We think that USD has peaked for the cycle, will decline more than market expectations and won’t be the portfolio diversifier that conventional wisdom expects it to be,” the strategists said. “The resultant better equity outlook in the rest of the world relative to the U.S. should also reduce U.S. investors’ repatriation flows, which have supported USD recently.”

Morgan Stanley echoes the likes of Goldman Sachs Group Inc (NYSE:). and Western Asset Management in calling for a weaker U.S. currency. The Bloomberg Dollar Spot Index is little changed in 2019, in part thanks to a mixed performance by the greenback against its Group-of-10 counterparts after rising about 3 percent last year.

And it’s not just strategists that are cooling on the dollar.

The greenback lost some of its luster as a reserve currency in the fourth quarter of 2018, with global central banks paring back their dollar holdings for a third straight quarter to the lowest level since 2013, data from the International Monetary Fund showed Friday.

A strengthening U.S. currency and rising dollar-denominated assets had “created a virtuous inflow cycle” in recent years, but that looks poised to turn, the Morgan Stanley strategists wrote in the note.

“We think that the risks are high of this reversing and turning into a vicious cycle as USD weakness makes holding USD assets less attractive,” they said.

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