--- title: "Morgan Stanley sounds the \"bull trap\" alarm: the market underestimates the negative impact of the Middle East war on the economy, and the dollar's upward trend is difficult to sustain" type: "News" locale: "en" url: "https://longbridge.com/en/news/280546096.md" description: "Morgan Stanley warns that the dollar may weaken due to the narrowing interest rate gap between the U.S. and Europe, as well as the negative impact of the Middle East war on the economy. Since the outbreak of the war, the dollar has risen due to safe-haven demand, but the market has underestimated the war's impact on economic growth. Morgan Stanley predicts that the Federal Reserve may cut interest rates twice this year, while the European Central Bank may raise rates by 50 basis points" datetime: "2026-03-26T01:05:04.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/280546096.md) - [en](https://longbridge.com/en/news/280546096.md) - [zh-HK](https://longbridge.com/zh-HK/news/280546096.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/280546096.md) | [繁體中文](https://longbridge.com/zh-HK/news/280546096.md) # Morgan Stanley sounds the "bull trap" alarm: the market underestimates the negative impact of the Middle East war on the economy, and the dollar's upward trend is difficult to sustain According to the Zhitong Finance APP, **Morgan Stanley stated that the dollar will weaken as the interest rate gap between the U.S. and Europe narrows, and the Middle East war suppresses economic growth.** Since the U.S. and Israel attacked Iran on February 28, the dollar has been strengthening, benefiting from its status as a safe-haven currency and the currency of the world's largest energy producer. Since the outbreak of the war, an index measuring the dollar's exchange rate has risen by 2%, reaching its highest level since December of last year on Monday. Meanwhile, the euro and yen have fallen more than 2% during the war, as both countries rely on energy supplies from the Middle East. ![11.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260326/1774486448528199.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) In a report on Wednesday, Morgan Stanley strategists led by David Adams wrote: “The rise of the dollar to this level is more likely a ‘bull trap’—a false signal of price movement that attracts investors into the market, only to suddenly reverse.” He added that the market has priced in the inflation risks brought by rising energy prices but still “underestimates the negative impact on economic growth.” According to the latest data from the U.S. Commodity Futures Trading Commission, as of the week ending March 17, traders have turned bullish on the dollar for the first time this year. The surge in energy prices has intensified inflation risks and prompted traders to digest the impact of European interest rate hikes—whereas before the outbreak of the war, they had bet on rate cuts. Morgan Stanley's view aligns with that of Castle Securities. Earlier this week, Castle Securities stated that investors are beginning to shift their focus from the initial inflation shock to its impact on global economic growth. Morgan Stanley strategists noted: “The interaction between inflation and growth poses challenges for central banks, and the policy outcomes will differ as they weigh these competing forces.” Morgan Stanley indicated that the Federal Reserve is likely to overlook the “transitory inflation shock” and focus instead on growth. The bank predicts that the Federal Reserve will cut interest rates twice this year. In Europe, strategists expect the European Central Bank to raise rates by 50 basis points “to address inflation.” The strategists stated: “Whether in absolute terms or relative to market pricing, interest rates may move in a direction unfavorable to the dollar.” ### Related Stocks - [Invesco DB US Dollar Bullish (UUP.US)](https://longbridge.com/en/quote/UUP.US.md) - [WisdomTree Bloomberg US Dllr Bullish ETF (USDU.US)](https://longbridge.com/en/quote/USDU.US.md) - [YieldMax Gold Miners Opt Inc Strgy ETF (GDXY.US)](https://longbridge.com/en/quote/GDXY.US.md) - [iShares MSCI Global Gold Miners ETF (RING.US)](https://longbridge.com/en/quote/RING.US.md) - [SPDR® Gold MiniShares (GLDM.US)](https://longbridge.com/en/quote/GLDM.US.md) - [abrdn Physical Gold Shares ETF (SGOL.US)](https://longbridge.com/en/quote/SGOL.US.md) - [US Global GO GOLD and Prec Mtl Mnrs ETF (GOAU.US)](https://longbridge.com/en/quote/GOAU.US.md) - [ProShares Ultra Gold (UGL.US)](https://longbridge.com/en/quote/UGL.US.md) - [VanEck Gold Miners ETF (GDX.US)](https://longbridge.com/en/quote/GDX.US.md) - [Direxion Daily Gold Miners Bull 2X ETF (NUGT.US)](https://longbridge.com/en/quote/NUGT.US.md) - [Global X Gold Explorers ETF (GOEX.US)](https://longbridge.com/en/quote/GOEX.US.md) - [iShares Gold Trust (IAU.US)](https://longbridge.com/en/quote/IAU.US.md) - [Sprott Junior Gold Miners ETF (SGDJ.US)](https://longbridge.com/en/quote/SGDJ.US.md) - [Roundhill Gold Miners Weeklypay ETF (GDXW.US)](https://longbridge.com/en/quote/GDXW.US.md) - [VanEck Junior Gold Miners ETF (GDXJ.US)](https://longbridge.com/en/quote/GDXJ.US.md) - [Sprott Gold Miners ETF (SGDM.US)](https://longbridge.com/en/quote/SGDM.US.md) ## Related News & Research - [Mount Everest Gold Returns to Profit in 2025](https://longbridge.com/en/news/280552412.md) - [investingLive European FX news wrap: Markets consolidate as focus turns to negotiations](https://longbridge.com/en/news/280309397.md) - [Latest on US-Iran, US dollar & UK CPI inflation remains at 3%](https://longbridge.com/en/news/280509911.md) - [PRECIOUS-Gold steady as markets assess Mideast ceasefire talks](https://longbridge.com/en/news/280559266.md) - [South Africa's gold mines find new life with price surge](https://longbridge.com/en/news/280347105.md)