Synopsis:

Morgan Stanley shares a tactically bullish stance on the USD, citing strong US data and trade policy risks. The EUR faces headwinds from weak domestic growth and tariff-related risks, while the GBP benefits from fiscal-driven growth and high rate differentials.

Key Points:

• USD:

  • View: Bullish.
  • Rationale: Strong US data and potential repricing of trade policy risks support continued strength in the USD.
  • Skew: Bullish.

• EUR:

  • View: Neutral with a bearish skew.
  • Rationale: Weak domestic growth, tariff-related risk premium, and declining rates compared to peers weigh on the EUR.
  • Skew: Bearish.

• GBP:

  • View: Neutral with a bullish skew.
  • Rationale: Fiscal-driven growth and persistent inflation keep the BoE on a gradual easing path. High front-end rate differentials remain supportive for GBP.
  • Skew: Bullish.

Conclusion:

Morgan Stanley expects the USD to maintain its upward momentum due to robust data and trade policy repricing. The EUR faces challenges from growth and rate differentials, while the GBP is poised for gains supported by fiscal resilience and attractive rate differentials.