The dollar’s headed lower, particularly against other havens, including the yen, franc and euro.

That’s the message from Morgan Stanley’s FX team, who sees the DXY slipping all the way to 91 over the next 12 months, down 9% from current levels and near the low-end of the range that held from 2014 to 2022.

Admittedly, the dollar bear narrative’s becoming a bit too consensus for my liking, or at least it feels that way. But Donald Trump’s not doing the greenback any favors and, importantly, it isn’t clear he wants to.

I don’t doubt Trump wants the dollar to retain its reserve status. He despises inferiority of any sort, so the notion that America’s currency shouldn’t be “the best” currency is surely appalling to Trump.

That said, he’s complained for years that dollar strength’s part and parcel of unfair trade and that other countries routinely “cheat” America by manipulating their currencies. Indeed, the thrust of various “Mar-a-Lago Accord” narratives is that the US can bully, goad and otherwise coerce America’s allies into engineering a weaker dollar without jeopardizing its role in international trade and finance. Recent events in Taiwan and reports that South Korea might’ve talked to the US about the won were generally seen as canaries and/or proof of concepts.

All of that to say the dollar bear case may be as simple as stating that Trump wants a weaker dollar and noting, gently or not, that he’s less inclined in his second term to take “no” for an answer. On anything.

Morgan Stanley’s view is a little more nuanced, but it does relate back, unavoidably, to Trump. The bank sees three reasons for continued dollar weakness. The first is just expectations for slower US growth and, eventually, lower front-end yields (as markets front-run Fed cuts).

The second reason is stepped-up hedging of foreign USD asset holdings. That’s critical, and I’ve mentioned it in these pages before. With the dollar now increasingly (and alarmingly) prone to selling off with US bonds and equities, trillions in foreign-held US assets suddenly need to be FX-hedged.

Although foreign investors might hold off on wholesale repatriation given that “a permanent liquidation and shift in assets requires conviction that return differentials versus the risk have [durably] shifted,” as Morgan Stanley put it, “the decision to FX hedge is far less consequential [and] gives investors more flexibility and optionality to wait and see how things play out.”

As the figure shows, bond portfolios tend to be hedged (Taiwan’s lifers notwithstanding), but equities less so. “Given the size of foreign holdings of both stocks and bonds, even a modest uptick in hedge ratios could prove a considerable FX flow,” Morgan Stanley said.

Finally — and this is where the rubber really meets the road — the bank cautioned that uncertainty’s likely to continue “over the dollar’s safe-haven status [which] may be under review.”

“A key motivation for investors’ under-hedging of US equities is that USD was seen as a natural hedge to equity returns, but price action in recent months has been an increased breakdown in correlations between USD and key assets,” the bank went on. “For investors who are increasingly valuing liquidity and safety over returns, USD may find less support than it otherwise would.”