Morgan Stanley analysts suggest that investor confidence in the United States dollar is soaring – a signal, they argue, that it might be time to sell.
The bank’s team, led by David Adams, noted that many investors anticipate a significant rise in the dollar’s value, particularly against the Euro, Australian Dollar, and British Pound.
This growing optimism is being driven by robust U.S. economic data and the anticipated tariffs set to be implemented by President-elect Donald Trump. Trump has pledged to introduce a wave of tariffs on key foreign trade partners when he takes office in January 2025.
However, Morgan Stanley says that their research shows that the dollar may not rise as much as anticipated and says people are being overly optimistic about the currency’s future value. This means now is a good time to sell or buy potentially more valuable currencies.
Morgan Stanley analysts say US outperformance narrative is increasing value of dollar
A common trend in the analysis of economics around the world has been the power of so-called “narratives.” This is the belief that words, particular media reports, can have a serious impact on the value of goods, regardless if the information reported is true or not.
According to Morgan Stanley – one of the biggest investment banks in the world – the value of the U.S. dollar is related to investors “internalizing the narrative of the U.S. outperformance.” The bank has even gone as far as crediting this as one of the main factors behind the currency’s increase in value.
However, the analysis also states that investors may be overestimating the speed and magnitude of the changes President Trump will impose on the U.S. trade policy during his second term in office. The bank’s analysts also say that “much of the ‘good news’ for the USD” has already been factored into its current price, meaning that people are now being too optimistic about the currency’s future value.
Investment bank says Trump policies will need time
Morgan Stanley has confirmed that now is a good time to sell given its current value and how that is expected to change in the current months. The bank’s analysts say that investors may “overestimating the speed, breadth and magnitude” of the policies Trump’s new administration will implement and therefore the value of the dollar.
With this in mind, Morgan Stanley suggests that investors should sell their dollars or to purchase Australian dollars and British pounds, as these currencies are expected to appreciate against the US dollar and are not so volatile, as they are less affected by trade tensions. Both currencies are also currently trading at an almost historically low price.
Morgan Stanley analysts said that investors could likely bet on an increase in the value of the British Pound and the Australian Dollar, to US$1.32 per £1 and AU$0.675 per US$1.