Global FX weekly: Breaking bonds

Research evidence excerpt

Global FX weekly: Breaking bonds

Key views, forecasts and latest trades

Michalis Rousakis Claudio Piron

MLI (UK) Merrill Lynch (Singapore)

michalis.rousakis@bofa.com claudio.piron@bofa.com

Exhibit 1: Our medium-term views

G10 and EM FX medium-term views

G10 We stay bearish on EURUSD in the near term, with our end-Q2 forecast at 1.14. Persistently higher energy prices present stagflationary impulses globally and slower US-

Euro area growth convergence. Beyond the near term, USD still needs to contend with possible downside US labor market, private credit, and growing fiscal risks re-

emerging. Further out, the implications of the evolving geopolitical landscape should continue to raise questions over optimal USD exposures. We forecast EUR-USD at

1.20 by year-end - conditional on no Fed hikes, energy normalization, and gradual US-Euro growth convergence. We are neutral on JPY near term, but our bias remains

bearish vs USD (we think exporters should continue to add USD‑selling hedges in the 157s) and outright bearish vs commodity FX. We are constructive GBP but would

wait for clarity given the political uncertainty, and most bearish NZD. RBA hikes are least likely to prove a policy mistake, keeping us bullish AUD. We like short CHF and

NOK and long SEK (vs. EUR) as medium-term normalization trades.

EM EM currencies are swinging back to anticipating a resolution to the Middle East conflict, which brings risk-on portfolio inflows back to the fore. Asia FX continues to

underperform with only MYR and CNY sustaining year-to-date gains. We anticipate a weaker USD in H2 as the tension dissipates and favor long CNY and MYR in Asia, and

underperformance in THB. ZAR remains the best hedge given its high beta to the Iran situation.