Liquid Insight: Summer jitters for G10 FX

Research evidence excerpt

Liquid Insight: Summer jitters for G10 FX

expect hikes. Second, our Commodities team revised down their natural gas forecasts

meaningfully – gas has been more important than Brent for the EUR in recent years (see

report: Global Energy Weekly 12 May '26).

As a result, our base case of gradual US-Euro area growth convergence stays intact,

partly supported German fiscal stimulus (see report: Liquid Insight 6 May '26). We also

continue to believe the FX market is underpricing the potential for European reforms.

Forecasts: more USD upside into Q2, before deprecation resumes

We keep our forecasts for EUR-USD, as well as more generally for Europe FX,

unchanged. We continue to look for further USD upside through H2, before modestly

depreciating by year’s end. We still forecast EUR-USD at 1.14 by end-June, but 1.20 by

year-end and 1.25 by end-2027, i.e. we are more cautious vs consensus median near

term but more bullish further out (Exhibit 3).

Outside of Europe, since last month, we have lowered our USD-JPY forecast profile, and

now expect end-2026 to be 152, as our medium-term JPY view has shifted from

bearishness more towards neutrality (see report: FX Viewpoint, “Wake up yen…a window

may be opening”, 19 May 2026.) We also similarly revised our NZD-USD profile as well.

However, elsewhere in the Dollar Bloc, we leave our AUD and CAD outlooks unchanged.

Risks: Iran, Inflation, but also keep an eye on trade headlines

While market sensitivity to Iran headlines has waned, we see multi-directional risks

should things materially escalate or de-escalate from here. The USD should benefit if

energy supply conditions deteriorate further, whereas anything resulting in greater

passage through the Strait of Hormuz would likely prompt a further relief rally in non-

USD currencies.