Morgan Stanley has dropped its earlier bearish view on the U.S. dollar and now expects dollar strength to continue through mid-2027, according to a Sept. 26 update cited by BlockBeats.
The bank expects the U.S. Dollar Index to reach 104 by that point. It also said the euro could weaken from about $1.14 against the dollar to $1.10.
Morgan Stanley revises its dollar outlook
The report said expectations for additional Federal Reserve rate hikes, the resilience of the U.S. economy, and persistently high energy prices should keep U.S. rates relatively attractive and continue to support the dollar. For foreign-exchange markets, that means the rate differential between the United States and other major economies may not narrow quickly.
Morgan Stanley had already revised its Fed path to include a 25-basis-point hike in December this year and another 25-basis-point increase in March 2027. Under that view, the federal funds rate would rise to 4.25%-4.5% and could remain at that level through 2027.
High yields still weigh on risk appetite
The bank said that view lines up closely with recent market conditions. On Sept. 25, the 10-year U.S. Treasury yield remained around 5.2%, while the U.S. Dollar Index traded near 101. U.S. stocks were steady in early trading on optimism tied to AI, and Bitcoin hovered near $84,900, but elevated yields were still limiting valuation room for risk assets.
European political risks add pressure on the euro
The report also identified political risks in Europe as an additional source of pressure on the euro. It pointed to France’s presidential election in spring 2027, along with election risks in Germany and Italy. If the euro risk premium keeps rising, the report said, that would combine with the U.S. rate advantage to push the dollar higher.