Investment bank Morgan Stanley anticipates that the Euro will suffer from a sharp decline within months, warning that the EU currency may slide toward parity with the US dollar amid growing political risks and economic challenges within the Eurozone.

David Adams, head of G10 foreign exchange strategy at Morgan Stanley, stated that the euro is expected to drop to 1.02 against the dollar by the end of 2024, marking a depreciation of approximately 7% from current levels.

In an interview reported by Bloomberg, Adams highlighted the increasing likelihood of aggressive interest-rate cuts by the European Central Bank (ECB) in response to the aforementioned challenges.

"There is plenty of scope for the market to refocus on the fact that the ECB could be cutting deeper and faster than what is currently priced," Adams said.

Moreover, he pointed to the upcoming ECB meeting as a key moment that could shift market expectations, with the possibility of a half-point rate cut being introduced in the near future.

Euro may rise by end of next year

The investment bank's forecast is among the most pessimistic in polls conducted by Bloomberg. The general consensus is that the Euro will rise to $1.11 by the end of next year, though growing political risks and economic slowdown have contributed to the more cautious outlook forecast by Morgan Stanley.

Traders are currently awaiting the ECB's decision this week, with the central bank expected to enact a quarter-point rate cut—its second during this cycle.

Adams emphasized that these twin challenges of political uncertainty and slowing economic growth are likely to deter investors from committing capital to the region in the short term.