to caution Strategic Analysts at Morgan Stanley In a note on Monday, the dollar’s latest rally creates an “unsustainable situation” for riskier assets that could end in a financial or economic crisis.
On Monday, the dollar index hit its highest level in two decades, while the pound sterling hit an all-time low against the dollar.
Extreme currency volatility is another pressure on the global economy and corporate profits, which are expected to decline as summer rate hikes begin to affect spending.
“Low stock levels and peak yields will likely be determined by the trajectory of earnings growth and the economy, not inflation” or the Federal Reserve (the US central bank) raising interest rates, wrote analysts at Morgan Stanley, including Michael Wilson.
Morgan Stanley added that pressures from a stronger dollar would help push the S&P 500 index to a new low between 3,000 and 3,400 points by early 2023.
The index fell 1% on Monday, near its lowest level this year.