(Reuters) -Morgan Stanley cut its 2023 year-end forecast for the dollar index to 98, and expects the greenback's weakness to be more pronounced against the euro this year as worries about the severity of an economic downturn start to ease.
They previously saw the index, which weighs the U.S. currency against a basket of six major rivals, ending 2023 at 104.
"Global growth is showing signs of buoyancy, macro and inflation uncertainty are waning and the USD is rapidly losing its carry advantage," said currency strategists at Morgan Stanley (NYSE:MS) led by James K Lord, in a note published late on Sunday.
The dollar index was trading at 102.4 around 1330 GMT on Monday.
The Wall Street bank now sees the euro strengthening against the dollar to 1.15 by year-end versus a previous forecast of 1.08. The euro was last trading at 1.08.
Among G10 currencies, MS strategists expect negative returns for the year from the British pound given domestic growth challenges, and from the Japanese yen due to its preference as a funding currency.
The Chinese yuan is expected to end the year at 6.65 per dollar, they said, up from the 6.73 it was last trading at. The bank's previous year-end forecast for the yuan was 6.80.
"Within emerging markets, we see an approximately 5% total return until the end of the year... Outperformers include those that will likely be sensitive to a recovery in the Chinese economy, including those currencies which were underperformers in 2022 such as the Chilean peso," they said.