Morgan Stanley Adjusted US Dollar Currency Forecasts
The bank has shifted to a neutral view on the US dollar while maintaining a bearish position on the Japanese yen.
Updated on Oct. 6, 2026 in Investing
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Morgan Stanley has moved to a neutral view on the US dollar with a bullish skew, walking back previous projections that favored a weaker currency. The adjustment follows a concession by strategists in late September that their earlier dollar-bearish forecasts were incorrect.
Why it matters
The shift reflects a response to the recent weak September US payrolls report, which lowered market expectations for an October Federal Reserve rate hike. The bank now advises clients to buy dips in the US dollar as they reassess their global currency strategy.
The bank previously projected the dollar index reaching 102 by year-end and the euro falling to 1.12 against the dollar. Strategists also noted a target price of 163 for long dollar-yen positions, up from an entry price of 158.
The players
Morgan Stanley
Morgan Stanley is a prominent global investment bank that provides financial services, research, and market analysis for institutional and retail clients.
Federal Reserve
The Federal Reserve is the central banking system of the United States that manages monetary policy, including interest rate decisions.
The details
Morgan Stanley continues to utilize carry trades to maintain its bearish view on the Japanese yen, citing elevated interest rate gaps between Japan and the United States. Additionally, the bank is favoring long Norwegian krone positions as an energy hedge against the euro and Swedish krona.
Timeline
Late September 2026: Strategists admitted previous weak-dollar forecasts were incorrect.
Last week: The weak September US payrolls report was released.
October 2026: The window for potential Federal Reserve rate hikes.
Year-end 2026: The target date for original dollar index and currency forecasts.
Mid-2027: The previous time horizon for projected dollar gains.
Market Dynamics
This adjustment reflects the complex interplay between central bank policies and global currency markets, mirroring broader macroeconomic cycles driven by interest rate differentials. As the Federal Reserve's federal funds rate target remains a focal point, banks are forced to recalibrate their carry trade strategies to navigate shifting liquidity.
Retail investors may need to adjust their portfolio allocations to account for the bank's revised neutral outlook on the US dollar. Those holding yen-based assets should monitor the widening interest rate gaps that continue to make the yen carry trade an attractive, yet risky, position.
The takeaway
Currency markets remain highly sensitive to labor data and shifts in central bank interest rate expectations. Investors should prioritize agility in their strategies, as even major financial institutions often recalibrate their long-term forecasts when economic indicators surprise.
Further reading
For more information on market trends, visit our Investing section.
Source note: This article includes information reported by News & Analysis for Stocks, Crypto & Forex | investingLive.
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