Morgan Stanley Sees Dollar Rally Pushing EUR/USD Down 2.1% Toward 1.13
Morgan Stanley projects that under near-term resolution, the U.S. Dollar Index could retrace 0.6% and EUR/USD may rise to about 1.18 as energy supply normalizes. In a severe disruption scenario with Brent near $90 and VIX above 29, the dollar would surge as EUR/USD drops 2.1% toward 1.13.
1. Scenario Analysis Framework
Morgan Stanley has identified three possible energy supply scenarios—near-term resolution, managed escalation, and severe disruption—to assess their impact on currency markets, particularly the U.S. Dollar Index and EUR/USD rates.
2. Near-Term Resolution Impact
In the near-term resolution scenario, analysts forecast the U.S. Dollar Index could retrace by 0.6% from current levels, while EUR/USD might rally to approximately 1.18 as oil market volatility returns to recent lows.
3. Managed Escalation Outlook
Under a managed escalation framework, Brent crude is expected to trade around $90 per barrel with the VIX hovering slightly above 29, leading to only marginal U.S. Dollar weakness and modest gains for risk-sensitive currencies like the Swedish Krona and Euro.
4. Severe Disruption Risks
A severe disruption scenario, driven by significant energy supply shocks, would likely push the U.S. Dollar higher and cause EUR/USD to tumble 2.1% toward the 1.13 floor, benefiting havens such as the Swiss Franc while weighing on European majors.