Morgan Stanley: U.S. Dollar Exchange Rate Will Weaken Due to Narrowing U.S.-Europe Interest Rate Spreads and Iran War Suppressing Economic Growth

金色财经_ · 2026-03-26T05:35:07+00:00

Morgan Stanley predicts the dollar will weaken due to narrowing US-Europe interest rate differentials and Iran conflict suppressing economic growth. Since February, the dollar has strengthened due to its safe-haven properties, while the euro and yen have declined due to dependence on Middle East energy. The Federal Reserve is expected to cut rates twice, while the European Central Bank will raise rates by 50 basis points, a rate trajectory unfavorable for the dollar.

金色财经_

2026-03-26 05:35:07

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Goldman Sachs reports that on March 26, Morgan Stanley stated that as the interest rate differential between the US and Europe gradually narrows and Iran’s war suppresses economic growth, the US dollar will weaken. The dollar, which has been strengthening since February 28 following the US and Israel’s joint attack on Iran, is benefiting from its safe-haven status and its position as the world’s largest energy producer currency.
The index measuring the dollar against a basket of currencies has risen 2% since the conflict erupted and reached its highest level since December last year on Monday. Meanwhile, the euro and yen both declined over 2% during the conflict, due to their heavy reliance on energy supplies from the Middle East.
Morgan Stanley believes the Federal Reserve may overlook “temporary inflation shocks” and focus on growth, expecting two rate cuts this year. In Europe, strategists expect the European Central Bank to raise interest rates by 50 basis points “to combat inflation.” They stated, “Whether in absolute terms or relative market pricing, interest rate trends could be unfavorable for the dollar.”
Morgan Stanley’s view aligns with Citadel Securities, which earlier this week said investors are beginning to shift focus from the initial inflation shocks to their impact on global economic growth.

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