• Wall Street Consensus: Major banks fortify calls that the US dollar will slide further, driven by expected Fed rate cuts, slowing US growth, and Trump-era trade/tax policies.
• Morgan Stanley: Predicts the dollar will plunge back to COVID 19–era lows by mid 2026. Their strategists forecast the US Dollar Index dropping roughly 9% to around 91 within a year.
• JPMorgan Chase: Maintains a bearish USD stance—recommending long positions in the yen, euro, and Australian dollar instead of the greenback.
• Goldman Sachs: Warns that if tariffs are thwarted, Washington may lean on alternative revenue sources (e.g., higher taxes on foreign investors), which would be even more negative for the dollar. Their models also suggest the USD is currently about 15% overvalued.
• June 2 Market Action: The Bloomberg Dollar Spot Index slid 0.5%, pushing it near its weakest level since July 2023, as global trade tensions flared anew.
• FX Implications:
– Euro: Climbed to a five week high at $1.1437; Morgan Stanley sees it potentially rising to $1.25 next year.
– Pound: Could advance from $1.35 to $1.45, thanks to relatively low UK trade tension risk and attractive carry.
– Yen: From ~143 today to 130, as Japan’s rate outlook remains more hawkish than the US.
• Bond Outlook:
– Morgan Stanley expects the 10 year US Treasury yield to reach 4% by year end, then decline sharply in 2026 as the Fed cuts a cumulative 175 basis points.
– On June 2, the 10 year yield briefly ticked up to 4.44% before dipping again.
• Key Catalysts Ahead:
– US labor market reports (e.g., May employment data) to shape Fed rate cut timing—and thus the dollar’s trajectory.
– Trade talk developments: Both China and the US have accused each other of violating last month’s deal, so any fresh negotiations (or setbacks) will ripple through FX markets.
• Tax Risk Alert: A provision buried in Trump’s new tax and spending bill would raise taxes on passive income (interest/dividends) for foreign investors in US assets—potentially accelerating capital outflows and exacerbating dollar weakness.
What’s Next?
• It’s striking how a combination of monetary policy shifts, trade policy uncertainty, and even tax changes can converge to reshape the dollar’s role in global markets. If these forecasts materialize, we may be at the start of a broad reallocations cycle—one where non USD assets (especially euro and yen denominated) could outperform for the next 12–18 months.

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