USD to strengthen against EUR and JPY next year, CAD and NOK to stand out – Morgan Stanley
13.12.2021, 08:59

USD to strengthen against EUR and JPY next year, CAD and NOK to stand out – Morgan Stanley

Economists at Morgan Stanley still think US Treasury yields will rise and the US dollar will strengthen in the first half of the year. But now they see a flatter US yield curve and the greenback performing better than before.

Central bank policy divergence supports a stronger dollar

“We don't foresee a tantrum occurring next year. We forecast 10-year Treasury yields will end 2022 just above 2%. That would represent a similar increase to what we saw in 2021.”

“We see a continued divergence between US and European economic data. This should keep the US dollar appreciating against low yielding G10 currencies, such as the euro. We also expect further upside for the US dollar against the Japanese yen, driven by higher US Treasury yields. 

“The Fed could strike a more upbeat and hawkish tone throughout next year, just as it has done more recently. On the other hand, the risk for the ECB is that its more hawkish members adjust their views in a more dovish direction, and then the ECB delivers more accommodation than expected, not less. If the upcoming Fed and ECB meetings this December go as we expect, they would set up the dollar for additional strength in the first half of next year.”

“We expect the Canadian dollar and the Norwegian krona to outperform the US dollar and lead the G10 pack. We see buoyant energy prices and hawkish central bank policies keeping these currencies running ahead of the US dollar and far ahead of the euro and the yen.”

 

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