U.S. Dollar at Greatest Risk in ‘Decades’, Says Morgan Stanley

(Bloomberg) -- The probability of the U.S. dollar
falling more than seven percent over the next four quarters is
the most since 1974, according to Morgan Stanley.

Risk to the U.S. dollar “from deteriorating U.S.
fundamentals is the greatest in decades,” Sophia Drossos, co-
head for global foreign-exchange strategy at Morgan Stanley in
New York, wrote in a research note dated yesterday. Morgan
Stanley models “indicate 91 percent probability” of a greater
than seven percent decline, Drossos wrote.

A “key risk” is increasing investor concern over “how
U.S. authorities will transition to a more sustainable policy
path, particularly with respect to the fiscal budget,” Drossos
wrote.
The federal budget deficit will total $1.6 trillion this
year as revenue falls and the U.S. government spends at the
fastest pace in 57 years, according to the nonpartisan
Congressional Budget Office. Next year’s deficit will total $1.4
trillion, according to the agency.
“We continue to project another 6 percent decline in the
trade-weighted dollar through end 2010,” Drossos wrote.
By Morwenna Coniam
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