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Morgan Stanley analysts have turned decidedly bullish on the common currency, ditching their call for euro-dollar parity and instead forecasting an almost 5 per cent rally through the end of 2017 amid a strengthening economy and dimming political risk. The New York investment bank said on Monday that it expects the euro to jump to $1.18 by the end of this year, and rise further to $1.19 in the first three months of 2018. That compares with forecasts as recently as June 1 of $0.97 and $1, respectively. It traded at $1.1248 in early US action. In a note entitled “pivot to Europe”, Morgan’s currencies strategists said “political stability and growth-related equity market inflows should boost” the currency. “After years of being bearish on [the euro], we conclude that [the euro] traded [at] its lowest post-Lehman level in January, when it moved into the $1.03 handle,” the analysts added. Wall Street’s sentiment on the currency bloc has shifted dramatically over the past few months. Its economy has outpaced developed-market rivals, like the US, this year, surprising many economists who were expecting weaker growth. Political headwinds have also eased, after last month’s election of Emmanuel Macron as French president and as German chancellor Angela Merkel has polled well ahead of an election there this autumn. Morgan’s analysts also point out that they reckon the European Central Bank will begin tapering its vast bond-buying programme early next year. If that were the case, it could be supportive of higher rates, which is generally bullish for currencies. The investment bank also tweaked its call for the UK pound. It now expects sterling to end next year at $1.24, down sharply from an earlier estimate of $1.45. It currently trades at almost $1.29. This is Morgan’s rationale for the more bearish view: So far, investors have been buying [the pound] as domestic political uncertainty was reduced and in the belief that neither the UK nor the EU had an interest in developing a post-Brexit ‘cliff edge’ in regards to current trading rules. That story was fine as long as economic data stayed supported. The UK consumer may now slow down after a rapid rise in the past year, lower savings and weaker real income growth. UK company investment is also expected to be weak.