Morgan Stanley Predicts USD Index Will Defy Dovish Fed and Stay Above 100

Morgan Stanley has expressed skepticism about the possibility of the USD index falling below the significant threshold of 100, even as Fed Chair Jerome Powell indicated at the Jackson Hole conference that future policy might be relaxed, tilting the risks towards a weaker dollar.

The 100-mark on the USD index holds crucial psychological and technical importance, according to David Adams, the head of G-10 FX strategy at Morgan Stanley. In a report released on Tuesday, Adams noted that it would be challenging to break this threshold in the absence of a shift in global dynamics.

Adams further added that political risks in Europe are likely underestimated, while the 2024 U.S. election is a distinct event that could favorably impact the USD.

Despite Powell's dovish comments suggesting potential easing of monetary policies, Adams believes the structural factors underpinning the strong dollar are robust enough to prevent a significant dip below 100.

Morgan Stanley's analysis points to the broader economic and geopolitical landscape, underscoring the resilience of the USD amidst varying global uncertainties.

In conclusion, while current sentiment and policy direction could exert downward pressure on the USD, the critical 100 level represents a substantial support point, bolstered by underlying economic factors and upcoming political events.