The Pathway to Euro-Dollar Strength Widens: Morgan Stanley - Pound Sterling Live

What the desk is arguing

Morgan Stanley argues that the pathway to euro-dollar strength has widened, driven by a convergence in growth expectations and a narrowing of policy rate differentials between the ECB and the Fed. The desk sees the euro benefiting from a structural decline in U.S. exceptionalism, as fiscal stimulus fades and the Fed eases more aggressively than previously priced.

Supporting evidence includes improving Eurozone current account surpluses and a reduction in political risk premiums after recent elections. The implicit counterfactual is that EUR/USD would have remained capped if the U.S. economy continued to outperform, a scenario Morgan Stanley now views as increasingly unlikely.

Where it sits in our coverage

Our consensus EUR/USD target for Dec-26 stands at 1.075, with a firm spread of 1.04 to 1.12. Morgan Stanley's bullish view diverges from our slightly more cautious median, but aligns with the upper end of our range. Our internal models give a 30% probability of EUR/USD reaching 1.10+ by year-end 2026.

Specific firm targets from our coverage: - JPMorgan: target 1.10, tenor Mar26 - Goldman Sachs: target 1.08, tenor Dec26 - Barclays: target 1.05, tenor Dec26

Morgan Stanley's explicit target is not fully disclosed in this excerpt, but the bullish tilt is evident.

How other firms see it

JPMorgan is aligned with Morgan Stanley's bullish stance, targeting 1.10 by Mar26. Goldman Sachs is more moderate at 1.08, while Barclays is contrarian with a 1.05 target for Dec26, reflecting a more cautious view on euro strength. The divergence centers on the pace of Fed easing and Eurozone growth resilience.