Morgan Stanley Bullish on Dollar, Expects Dollar Index to Rise to 104

Morgan Stanley has revised its outlook on the dollar, expecting the dollar's strength to continue until mid-2027, with the dollar index rising to 104 and the euro against the dollar potentially falling to 1.10. The firm believes that expectations of Federal Reserve interest rate hikes, the resilience of the U.S. economy, and high energy prices will maintain the U.S. interest rate advantage, supporting the dollar. On September 25, the yield on 10-year U.S. Treasuries was around 5.2%, with the dollar index fluctuating near 101. Morgan Stanley predicts that the Federal Reserve will raise rates by 25 basis points in December and again in March 2027, bringing the federal funds rate to 4.25%-4.5%, which may be maintained in 2027, making it difficult for the interest rate differential between the U.S. and other major economies to narrow quickly. Additionally, political risks in Europe, such as the French presidential election in spring 2027 and election risks in Germany and Italy, will put pressure on the euro, potentially boosting the dollar.

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