Key Predictions and Market Impact
Morgan Stanley strategists predict the US dollar will depreciate in 2025 due to anticipated Federal Reserve interest rate cuts that are expected to surpass those by the European Central Bank. This forecast is influenced by a combination of slowing US economic growth, uncertainties in trade policies, and a reduction in fiscal support, all of which are expected to impact global currency markets and the valuations of crypto assets.
Federal Reserve Actions and Dollar Decline
Morgan Stanley strategists, including David Adams and James Lord, believe that the Federal Reserve's anticipated interest rate cuts will lead to a depreciation of the US dollar. These strategists attribute the expected dollar weakness to factors such as a slowdown in economic growth and uncertainty surrounding US policy. James Lord specifically noted that "policy uncertainty, such as tariff negotiations," continues to exert downward pressure on the dollar.
The consequences of a declining dollar extend beyond currency exchange rates. According to Morgan Stanley, the euro has recently gained 11.5% against the dollar. The anticipated depreciation is expected to influence capital flows, potentially redirecting investments towards cryptocurrencies and other risk assets. Mike Wilson indicated that the dollar might experience a 10% drop this year, which could lead to a boost in alternative asset markets.
Market participants have presented varied perspectives on these developments. Andrew Sheets emphasized that the dollar's 15-year bull cycle has concluded, suggesting a period of prolonged weakness. Concurrently, other global analysts, including those from J.P. Morgan, foresee continued USD weakness throughout the year, driven by both structural and cyclical economic factors.
David Adams, Head of G10 FX Strategy at Morgan Stanley, stated, "We’re likely at the intermission rather than the finale. The second act for the dollar’s weakening should come over the next 12 months, as US interest rates and growth converge with those of the rest of the world."
Crypto Markets Anticipate Increased Risk Asset Flows
The US dollar's projected decline to 91.00 by mid-2026 is notable, mirroring its 11% depreciation in 2025 and representing its weakest performance since 1973.
Ethereum (ETH) is currently trading at $4,211.64, with an approximate market capitalization of $508.34 billion and a market dominance of 13.01%. Over the last 90 days, Ethereum has seen a price increase of 11.68%. Its 24-hour trading volume is $40.18 billion, indicating a 64.82% change.
Coincu research analysts predict that a declining dollar could potentially boost crypto valuations by encouraging investments in risk assets. Historical patterns suggest pro-cyclical shifts during such economic periods, which tend to favor Layer 1 and Layer 2 assets like Ethereum. This trend reflects potential financial and technological outcomes as investors explore alternative investment opportunities.