Synopsis:

Morgan Stanley continues to forecast DXY weakness but now expects the bottoming process to occur sooner than previously thought. Their updated forecast moves the DXY bottom to 103 (vs. 101 prior) and shifts the expected timing to Q2 (from Q4). They maintain a bearish USD outlook but acknowledge it remains out of consensus with both forecasters and markets.

Key Points:

Revised USD Index (DXY) Bottoming Forecast

• Now expecting DXY to bottom at 103, instead of 101.
• Timeline moved up to Q2, rather than Q4.
• Still forecasting overall USD weakness, but with a shallower decline.

DXY Bearish View Still Contrarian

• Morgan Stanley’s expectation of a weaker USD remains out of consensus.
• Markets and other forecasters still lean more bullish on USD.
• The shift reflects changing market conditions, including resilient US data and persistent rate divergence.

Conclusion:

Morgan Stanley still sees a weaker DXY ahead but has revised the depth and timing of the move. Instead of bottoming at 101 in Q4, they now see 103 as the floor, with the decline occurring in Q2. This suggests USD depreciation may happen sooner than expected but won’t be as deep as previously forecast.