Morgan Stanley Bullish on Euro as Economy Can Endure More Hikes
- Near-term forward spread is flat in euro area, inverted in US
- Metric is “signal that Europe can handle higher rates”: Adams
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A closely-watched interest-rate metric has convinced Morgan Stanley strategists that the euro area can withstand further increases in borrowing costs, boosting their bullish view on the single currency.
The near-term forward spread — the difference between the three-month rate and where investors see it in 18 months’ time — is inverted for markets including the US and New Zealand, but remains roughly flat for the euro zone after declining in January. That’s a sign that the European Central Bank can keep cranking up interests to tamp down on inflation without having to worry too much about the economic impact, said David Adams, head of Group-of-10 FX strategy at the bank.