Morgan Stanley forecasts a sharp fall in the euro

Morgan Stanley said the euro will depreciate against the dollar within months as the ECB accelerates its rate cut amid a stumbling economy.

David Adams, Head of G-10 Currency Strategy, said in an interview with Bloomberg that he expects the euro to fall to $1.02 by the end of the year, which implies a depreciation of about 7 percent from current levels.

This is based on the central bank continuing to cut rates at its next three meetings, with the potential for a half-point cut.

“There is plenty of room for the market to refocus on the fact that the ECB could cut deeper and faster than currently priced in. This week’s meeting could be an important catalyst for the market to start thinking about that. “ he said.

The growing political uncertainty in Europe is now adding to the belief that there is a bearish bias in the euro. While there has been a lot of attention on French politics in recent months, Adams believes German political developments are equally worrisome for the region’s long-term political stability. “Both of these factors suggest that investors will be less willing to put capital into the region at a time of slowing economic growth,” Adams said, adding that political risk premiums and uncertainty have increased.

On the other hand, money markets are currently pricing in the possibility of a rate cut of around 60 basis points in Europe this year, while a big cut of around 110 basis points is expected in the US.