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U.S. dollar strength creating ‘untenable’ situation that risks financial crisis -Morgan Stanley By Reuters

© Reuters. FILE PHOTO: A man counts U.S. dollar banknotes at an exchange shop in Beirut, Lebanon March 18, 2022. Picture taken March 18, 2022. REUTERS/Mohamed Azakir/File Photo

NEW YORK (Reuters) – The recent rally in the U.S. dollar is creating an “untenable situation” for riskier assets that could end in a financial or economic crisis, strategists at Morgan Stanley (NYSE:) warned in a note Monday.

The hit a new two-decade high Monday as the pound hit an all-time low against the greenback.

The wild swings in currencies are another pressure on the global economy and corporate earnings, which are expected to fall as the Federal Reserve’s aggressive interest rate hikes over the summer begin to weigh on spending.

“The ultimate lows for stocks, and highs for yields, will likely be determined by the growth trajectory in earnings and the economy rather than inflation or the Fed,” analysts including Michael Wilson at Morgan Stanley wrote.

The pressures from the dollar’s rally will help push the to a new bear market low between 3000 and 3400 by early 2023, the firm said.

The S&P 500 fell 1% on Monday and it is close to its year low.

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