Investing.com – The US greenback has benefited from the nation’s current election outcomes, and Morgan Stanley (NYSE:) expects extra strengthening forward as the brand new Trump administration begins to enact its proposed insurance policies.

At 05:40 ET (10:40 GMT), the Greenback Index, which tracks the buck towards a basket of six different currencies, traded 0.3% larger to 105.802, its highest stage because the starting of July.

“The ultimate outcomes of the US election haven’t but been confirmed, however it appears affordable to us to suppose {that a} Republican sweep seems seemingly,” analysts at Morgan Stanley stated, in a observe dated Nov. 11. 

“Our work forward of the US election framed a Republican sweep as probably the most optimistic consequence for the US greenback and we reconfirmed our expectation for a greenback rally” final week.

The financial institution’s expectation for the greenback to rally is predicated on three fundamental causes:

Pricing of tariff dangers: Consumer conversations forward of the US election revealed a variety of views on the chance of tariffs being applied. We imagine that Republican-proposed insurance policies on tariffs must be taken critically and, ought to newsflow verify their chance, we’d count on buyers to reply by shopping for USD, notably towards the currencies of economies most affected by any tariffs. 

Higher information and better UST yields: Our US charges workforce has raised the potential for larger UST yields into year-end, pushed by higher information now that the US election is behind us and hurricane season is unlikely to weigh on payroll progress. This could assist USD broadly.

Upside dangers to USD on fiscal coverage: The Morgan Stanley baseline view for fiscal coverage adjustments in a Republican sweep is for an extension of the TCJA, that means that the affect solely happens in 2026 and doesn’t indicate important fiscal stimulus contemplating that it merely extends the established order. Given the restricted affect we see, the dangers are more likely to the upside for the market.

“The sequencing particularly is essential. If the potential administration focuses on tariffs early and in addition brings ahead fiscal assist to have an effect in 2025, then we predict the USD affect will seemingly be bigger, earlier,” Morgan Stanley added.