Morgan Stanley expects that the US dollar's rise is unlikely to be sustainable, with the interest rate differential between the US and Europe shrinking and fears that a war with Iran could drag down the economy.

Morgan Stanley expects the US dollar to weaken, as the interest rate differential between the US and Europe narrows and the Iran war may hit the US economy. Since the US joined Israel in attacking Iran on February 28, the US dollar has been strengthening continuously. This rally has benefited from the safe-haven nature of the US dollar, as well as the US's position as the world's largest energy producer. Since the outbreak of the Iran war, the US dollar index has risen by 2%, reaching its highest level since December last year on Monday. Meanwhile, the euro and the yen have both fallen by over 2% during the conflict, as Europe and Japan both rely on energy supplies from the Middle East. In a report released on Wednesday by Morgan Stanley strategist David Adams, it was mentioned that the rise in the US dollar to this level is more likely a "bull trap", as the market has priced in the inflation risk from rising energy prices but underestimated the negative impact on economic growth.