Investing.com -- The recent decline in the U.S. dollar “is at the intermission, not the finale,” Morgan Stanley strategists said in a recent note.

“We don’t think that 1.17 in EUR/USD is the finale but is rather closer to the intermission,” they wrote, projecting further declines in the dollar through 2027.

The bank argues that the depreciation will have only a modest effect on the broader U.S. economy in the near term. Their models suggest that a 1% drop in the dollar translates into a roughly 5 basis point increase in both headline CPI and GDP.

“We don’t expect a meaningful overall macroeconomic effect from the recent FX depreciation,” the strategists led by David S. Adams wrote, noting the U.S. is relatively closed and less sensitive to currency-driven trade shocks compared to other nations.

Most of the inflationary impulse is expected to emerge over the next six months, with the bank forecasting a roughly 20bp lift to headline CPI in the year ahead. Core inflation is seen as largely unaffected.

However, the implications for U.S. corporates are more significant. A weaker dollar serves as a tailwind for multinationals that generate a large share of revenue overseas. These companies benefit from currency translation effects when foreign earnings are converted back into dollars.

“We believe the weaker dollar is a substantial, underappreciated tailwind for U.S. multinational companies’ earnings,” the team said.

Larger firms with global exposure, particularly in sectors such as Tech, Materials, and Industrials, are poised to gain the most.

The bank screened for high-quality stocks with over 15% foreign revenue and rated Overweight by their analysts, identifying several large-cap names across sectors including Energy, Healthcare, Financials , and Technology.

Examples include Microsoft (NASDAQ: MSFT ), Salesforce (NYSE: CRM ), ExxonMobil (NYSE: XOM ), Procter & Gamble (NYSE: PG ), and Mastercard (NYSE: MA ), among others.

The ongoing FX dynamics may also affect corporate hedging behavior, strategists note. They point out that companies tend to increase hedge ratios during periods of dollar strength, but may now reduce them as the dollar softens. That could further reduce demand for the greenback and reinforce its decline.

“USD is still at the upper end of historical ranges and pro-cyclicality from hedging and index rebalancing are important amplifying considerations,” the note states.

Furthermore, the report points to structural effects. As the dollar weakens, the U.S. share in global bond and equity indices could decline, potentially leading to reduced passive inflows into U.S. assets.

Although the Fed is not expected to alter its monetary policy stance dramatically due to dollar weakness, Morgan Stanley sees a gradual shift toward a more dovish posture over time.

Still, the depreciation alone isn’t seen as a catalyst for immediate policy changes, particularly given the muted pass-through to core inflation.