The U.S. dollar will depreciate next year, and it's not just because the Federal Reserve will potentially stop raising interest rates, according to Morgan Stanley.

With U.S. economic growth forecast to slow next year, the Fed is widely expected to take a break from hiking rates in the middle of 2019 which will weaken the U.S. dollar. But more importantly, large economies such as Europe, Japan and China are now investing less in global financial markets, so demand for the U.S. dollar will likely reduce, said Hans Redeker, Morgan Stanley's global head of FX strategy.

That's significant because the U.S. is running both fiscal and current account deficits, so the country needs buyers for the bonds that it sells. A fiscal deficit happens when a government's total spending exceeds the revenue that it earns, while current account deficit occurs when a country imports more than it exports.

"When you create debt, you need to find somebody to buy it. And that means you need to look into the global availability of capital and ... global availability of capital is in sharp decline," Redeker told CNBC's Sri Jegarajah on Thursday.

As a result, there will be less capital available to fund U.S. deficits, he said at the Morgan Stanley 17th Annual Asia Pacific Summit in Singapore.

Higher bond yields — partly a result of the Fed's rate hikes — and improved economic growth in the U.S. this year spurred investors to shift funds into the world's largest economy. That in turn led to an increased demand for the U.S. dollar, which has strengthened the currency for most of 2018.