Morgan Stanley(US:MS) Hua Er Jie Jian Wen·2025-09-23 03:28Core Viewpoint - Morgan Stanley predicts a sustained and widespread sell-off of the US dollar, citing potential negative impacts from a government shutdown as a contributing factor [1]. Group 1: Dollar Bear Market Mechanism - Morgan Stanley indicates that the US dollar has entered a "bear market mechanism," which is expected to persist for a longer duration, leading to significant selling pressure on the dollar [1]. - The shift in the Federal Reserve's policy, prioritizing job market protection over strict inflation control, is seen as a driving force behind the dollar's bear market [4][6]. - Historical data shows that under the dollar bear market mechanism, other currencies tend to appreciate against the dollar with a frequency of 67-84% and substantial average gains [4]. Group 2: Interest Rate Dynamics - The market is pricing in a decline of nearly 100 basis points in the dollar's interest rate advantage over the next 12 months, which will significantly reduce the cost of shorting the dollar [1][11]. - Investors have reported that the punitive interest rate spreads associated with shorting the dollar are a challenge, but Morgan Stanley anticipates a "spread relief" that will lower the costs by 50-75 basis points for most currencies, and nearly 150 basis points for USD/JPY [7][11]. Group 3: Government Shutdown Risks - The rising probability of a government shutdown adds new downward pressure on the dollar, as historical trends indicate that such shutdowns typically have a negative impact on the dollar's value [12]. - Current negative risk premium for the dollar is approximately -4%, and a government shutdown could exacerbate this situation, further increasing the risk premium [12]. - A government shutdown would also halt the release of government data, limiting the Federal Reserve's access to economic indicators before its meeting on October 29 [12][14].