US bank Morgan Stanley has forecast that the euro will sink below parity with the dollar before the end of this year, and UK election fever will drive down the pound to $1.39 by June. 

The forecasts for the euro's fall  are among the most aggressive yet issued, and predict the single currency will be worth just 98 cents by the fourth quarter. 

They stem mainly from expectations of continued euro weakness as the European Central Bank pumps billions more in newly-created money into the financial system, rather than a bullish view on the dollar. 

"The anticipated reacceleration of the US economy should keep the dollar strong," the bank said in a note laying out its spring forecasts. 

Previously Morgan Stanley had forecast the euro to stand at $1.05 by the fourth quarter of this year. 

On sterling, under increasing pressure against the dollar ahead of parliamentary elections in May, the bank predicted a slide from around $1.46 yesterday to $1.39 by the end of June. 

"Under our base case scenario of the next UK government being led by one of the major parties, we would expect renewed fiscal austerity, which will lead to a slower growth picture in the UK," the bank said, also pointing to the risks of a referendum on Britain's EU membership after the election.