Morgan Stanley warns: Dollar bulls beware! The "silent bears" are preparing to strike

According to the Zhitong Finance APP, Morgan Stanley stated that despite the dominance of the US dollar sweeping across the market, traders seeking to sell the dollar are far more common than people think.

Strategists, including David Adams, wrote in a report: "While there are many bullish on the dollar, and they may be the most vocal in expressing their views, it seems there are even more 'silent' investors looking to sell the dollar. Many investors are holding idle funds and are waiting for the right signal to short the dollar."

The team indicated that a catalyst may be on the way: inflation data before March could increase the likelihood of the Federal Reserve cutting interest rates, while lengthy fiscal negotiations in Congress may disappoint dollar bulls. Strategists also expect that a relaxation of trade policies could put pressure on the dollar.

Investors, including hedge funds, have been increasing their bullish dollar positions, believing that Trump's policies will hurt other currencies, raise price pressures, and keep US interest rates high. If the dollar's trend reverses, it would increase the risk of significant market volatility.

However, in recent months, selling the dollar has been a painful trade in the foreign exchange market, which has a daily trading volume of $7.5 trillion.

In the past quarter, the dollar has risen against almost all major currencies. The dollar has strengthened against currencies like the Mexican peso and the Canadian dollar, which have been hit hard by the risk of increased US tariffs.

Nevertheless, since Trump's inauguration, traders have focused more on his trade actions rather than his words. In the first few days of his presidency, he merely issued threats without implementing the tariff stick he promised during his campaign, which created a sense of cautious optimism in the market.

Typically, the dollar would appreciate due to tariff expectations, but it fell 1.3% this week. On Friday, the Bloomberg Dollar Spot Index dropped 0.2% in Asian trading after Trump stated in an interview that he "would rather not impose tariffs on China."

Morgan Stanley recommends shorting the dollar against the euro, yen, and pound, as it expects the dollar to weaken.

The bank's strategists wrote: "Investors may be more willing and determined to increase their dollar short positions than dollar bulls expect. For them, it is more a matter of timing than direction."