Welcome to Thoughts on the market.

I'm Andrew Sheets, Chief Cross Asset Strategy

from Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives,

I'll be talking about trends across the global investment landscape and how we put those different

ideas together.

It's Friday, October 11th at 2 p.m. in London.

Year to date, the US dollar has gained about 3% against a weighted basket of its major trading partners.

It's been modest but unrelenting strength and many investors expect it to continue.

Our foreign exchange team, however, disagrees.

To understand why, it's helpful to think about why the

dollar has been steadily rallying year-to-date and why it remains so popular.

It's not because of its valuation with our foreign exchange strategists believing the dollar is

overvalued by about 10% versus a broad basket of its trading partners.

Yet to many investors that's simply a price that is worth paying.

The US dollar, after all, has three extremely

attractive properties. It offers higher interest rates than other currencies.

It represents a better performing economy and it's defensive given to do even

better under periods of market stress. Those investors believe

justify the premium price. In contrast, our concern at Morgan Stanley is that all three of those

factors are shifting, potentially right before our eyes.

In terms of the relative interest rate, the US dollar does still pay more than any other

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