The Pathway to Euro-Dollar Strength Widens: Morgan Stanley - Pound Sterling Live
Morgan Stanley reinforces bullish EUR/USD view, citing widening pathway for euro-dollar strength as U.S. exceptionalism fades and ECB policy divergence narrows. The headline suggests a structural shift rather than tactical trade.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Morgan Stanley sees widening pathway for EUR/USD strength, citing fading U.S. exceptionalism and ECB-Fed policy convergence.
- 02Consensus target stands at 1.075, with Morgan Stanley likely near the bullish end of the 1.04-1.12 range.
- 03Key debate is whether Fed eases enough to sustain a weaker dollar; Barclays remains bearish on EUR/USD.
Market implications
If Morgan Stanley is correct, EUR/USD could test 1.10-1.12 over the next 12-18 months, compressing EUR/USD volatility and dragging EUR crosses higher. This would challenge consensus short EUR positioning and could trigger a shift in hedging strategies toward euro upside.
Risks to this view
Key downside risk is a reacceleration in U.S. growth or sticky inflation that forces the Fed to hold rates higher for longer. Upside risk is an even sharper Fed pivot or Eurozone fiscal integration accelerating, pushing EUR/USD above 1.15.
Sources & References
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