Energy shock risk could push EUR/USD down to the 1.13 level, says Morgan Stanley

LootboxPhobia · 2026-03-07T12:48:44+00:00

The foreign exchange market faces high volatility due to expectations of Middle East conflict, with Morgan Stanley noting that the US dollar and euro are closely linked to oil supply disruptions. In different scenarios, the US dollar may retreat while EUR/USD rises. If a severe disruption occurs, the dollar could surge, and EUR/USD could fall to 1.13. The Swiss franc will benefit, while the currencies of Poland and Hungary will come under pressure.

LootboxPhobia

2026-03-07 12:48:44

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Investing.com — As analysts evaluate three different energy supply scenarios triggered by the Middle East conflict, the foreign exchange market is preparing for a period of high volatility. Morgan Stanley’s latest impact assessment report indicates that the US dollar (USD) and euro (EUR) remain closely linked to the severity of disruptions in the global oil market.

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The US Dollar Index (DXY) has benefited from ongoing “safe-haven” demand, but if the market returns to last month’s stable prices and volatility levels, the index could see a 0.6% pullback. In the “short-term resolution” scenario, EUR/USD is expected to rise to around 1.18.

A de-escalation in the US-Israel-Iran conflict could trigger a significant rally in Central and Eastern European (CEE) currencies. As risk appetite increases, the Polish zloty (PLN), Hungarian forint (HUF), and Czech koruna (CZK) are expected to perform well.

“Controllable escalation” neutral zone

Current forex levels seem consistent with a “controllable escalation” framework. In this environment, Brent crude oil is expected to trade around $90 per barrel, while the VIX (volatility index) remains slightly above the current reading of 29.49.

This moderate scenario suggests the dollar will weaken only slightly, with risk-sensitive currencies rising modestly. The recent trend may continue, but analysts note that the moves will be “limited in scope” and unlikely to significantly impact major currency pairs.

Among G10 currencies, the Swedish krona (SEK) and euro are expected to rise steadily but with limited gains, while traditional safe-haven currencies like the Japanese yen (JPY) and Swiss franc (CHF) may underperform.

Severe disruption and the 1.13 level

The “severe disruption” scenario would significantly worsen the outlook, as energy supplies face severe restrictions, causing the dollar to surge sharply. This outcome would put heavy pressure on major European currencies, with EUR/USD expected to fall by 2.1%, down to the 1.13 level.

The Swiss franc is expected to be the main beneficiary of safe-haven capital flows. Currencies of major commodity exporters like the Canadian dollar (CAD) and Norwegian krone (NOK) may only see modest gains.

Among G10 currencies, the worst performer would be the Swedish krona (SEK). The Polish zloty (PLN) and Hungarian forint (HUF) are expected to decline in the Central and Eastern European region, as high energy costs and geopolitical risks threaten local valuations.

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