Morgan Stanley raised its forecast for the US dollar against the euro on expectations the US currency will benefit from further interest-rate increases by the Federal Reserve.
The world's biggest securities firm predicts the US dollar will advance to US$1.17 per euro by the end of September, up from an earlier prediction of US$1.20. Morgan Stanley also lifted its forecast for the US dollar against the yen to 108 by Sept. 30 from a previous projection of 101.
The US currency had its best first half against the euro since 1999 as the Fed's nine interest-rate increases since June last year increase the advantage in yield US assets such as government bonds have over equivalent German debt.
"Yield differentials will likely continue to support the dollar for the remainder of the year," Stephen Jen, head of currency strategy in London at Morgan Stanley, wrote in a report, a copy of which was e-mailed to Bloomberg News.
Morgan Stanley expects the US dollar to trade at 112 yen by the end of the year, stronger than its earlier forecast of 101. The US currency will end December at US$1.18 Morgan projects, compared with an earlier forecast of US$1.19.
JPMorgan Chase & Co, the third-biggest US bank, also raised its forecast for the US dollar against the euro, predicting the currency will strengthen to US$1.15 per euro by the end of the year, up from a previous forecast of US$1.20.
"There is much more emphasis on relative economic performance and interest rates," said Claudio Piron, a currency strategist in Singapore at JPMorgan. "Higher US rates will add traction to the dollar."
JPMorgan also raised its forecast for the US dollar versus the yen, predicting the currency will advance to 115 yen by Dec. 31, up from an earlier forecast of 107.
Credit Suisse First Boston, a unit of Switzerland's second-biggest bank, and BNP Paribas SA, France's second-biggest bank, yesterday raised their forecast for the US dollar against the yen on expectations higher oil prices will hamper Japanese economic growth.
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