Morgan Stanley warns that escalating Middle East tensions could push EUR/USD toward 1.13 as energy supply disruptions intensify. The bank's analysis outlines three scenarios ranging from near-term resolution to severe disruption, with currency markets highly sensitive to oil price volatility and geopolitical developments.

The U.S. Dollar Index (DXY) faces potential 0.6% retracement if markets stabilize, while EUR/USD could climb to 1.18 under a peaceful resolution. However, a severe disruption scenario would trigger a 2.1% drop in the euro-dollar pair toward the 1.13 level as the greenback surges amid flight-to-safety flows.

Central and Eastern European currencies would suffer disproportionately in a crisis, with the Polish Zloty (PLN) and Hungarian Forint (HUF) leading losses. The Swiss Franc would emerge as the primary beneficiary, while commodity currencies like the Canadian Dollar (CAD) and Norwegian Krone (NOK) would see only marginal gains.