Morgan Stanley has reversed its previous outlook for a weaker U.S. dollar and issued a new forecast that the dollar’s strengthening trend will continue through mid-2027. The global investment bank said the dollar’s relative strength is likely to persist as solid U.S. economic growth coincides with a prolonged period of monetary tightening.
Morgan Stanley expects the dollar index, which measures the dollar’s value against major currencies, to rise from its current level of about 101 to 104. Meanwhile, it forecasts the dollar-euro exchange rate to fall from around $1.14 to approximately $1.10, pointing to relative weakness in the euro.
The key factors behind the revised outlook include the possibility of additional U.S. Federal Reserve rate hikes, solid economic fundamentals and the United States’ interest-rate advantage resulting from high energy prices. The report projects that the Federal Reserve will raise its policy rate by 0.25 percentage points each in December this year and March next year. It also analyzes that the policy rate is likely to remain at 4.25% to 4.5% thereafter, with monetary conditions staying tight through the end of 2027.
It further observed that persistently high U.S. Treasury yields are likely to continue weighing on investor sentiment toward global risk assets. In addition, major political uncertainties in Europe, including France’s 2027 presidential election, were identified as factors that could put further pressure on the euro and boost preference for the dollar.