Morgan Stanley stated that if the European Central Bank (ECB) keeps interest rates unchanged next year, the euro could surge to its highest level in over a decade.

"If the ECB maintains steady policies, combined with our assumptions on U.S. interest rates and risk premium trends, the euro is projected to rise to 1.30 against the dollar by the second quarter," wrote strategists including David Adams in a report.

This level, 11% above the current 1.17, would mark the euro's strongest position since 2014.

However, Morgan Stanley's baseline scenario does not anticipate a hold on rates but rather expects a 50-basis-point rate cut by mid-2026.

In contrast, markets have increasingly priced in ECB rate hikes for 2026 following hawkish remarks from ECB official Isabel Schnabel this week.

Adams added that even if the ECB eases policy, the euro could still climb to 1.23, as the Federal Reserve is expected to continue cutting rates, leading to broad dollar weakness.