US greenback has room to rally additional – Morgan Stanley

Investing.com – The US greenback has benefited from the nation’s latest election outcomes, and Morgan Stanley (NYSE:MS) expects extra strengthening forward as the brand new Trump administration begins to enact its proposed insurance policies.

At 05:40 ET (10:40 GMT), the Greenback Index, which tracks the dollar towards a basket of six different currencies, traded 0.3% increased to 105.802, its highest degree for the reason that starting of July.

“The ultimate outcomes of the US election haven’t but been confirmed, however it appears cheap to us to assume {that a} Republican sweep seems doubtless,” analysts at Morgan Stanley stated, in a observe dated Nov. 11. 

“Our work forward of the US election framed a Republican sweep as probably the most constructive final result for the US greenback and we reconfirmed our expectation for a greenback rally” final week.

The financial institution’s expectation for the greenback to rally is predicated on three major causes:

Pricing of tariff dangers: Shopper conversations forward of the US election revealed a variety of views on the chance of tariffs being applied. We imagine that Republican-proposed insurance policies on tariffs ought to be taken significantly and, ought to newsflow verify their chance, we might anticipate traders to reply by shopping for USD, notably towards the currencies of economies most affected by any tariffs. 

Higher knowledge and better UST yields: Our US charges workforce has raised the potential for increased UST yields into year-end, pushed by higher knowledge now that the US election is behind us and hurricane season is unlikely to weigh on payroll progress. This could assist USD broadly.

Upside dangers to USD on fiscal coverage: The Morgan Stanley baseline view for fiscal coverage adjustments in a Republican sweep is for an extension of the TCJA, which means that the influence solely happens in 2026 and doesn’t indicate important fiscal stimulus contemplating that it merely extends the established order. Given the restricted influence we see, the dangers are more likely to the upside for the market.

“The sequencing specifically is essential. If the possible administration focuses on tariffs early and likewise brings ahead fiscal assist to have an effect in 2025, then we predict the USD influence will doubtless be bigger, earlier,” Morgan Stanley added.