Global FX weekly: The Rate Escape

Research evidence excerpt

Global FX weekly: The Rate Escape

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 EUR-USD 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, the USD still needs to contend with possible downside risks to the US labor market, private credit, and re-emerging

fiscal risks. 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. Our structural JPY view has turned neutral, given the

improvement in Japan’s structural flow dynamics. We forecast USD-JPY at 152 by end-2026 (156 end-Q2). We are constructive on GBP, seeing political and fiscal risks as

better priced. We remain bearish on NZD and bullish on AUD, seeing RBA hikes as the least likely in G10 to prove a policy mistake. SEK remains our preferred de-escalation

hedge, while we like fading NOK rallies, on the basis that the ‘sweet spot’ scenario of high energy prices and positive risk sentiment is not easily sustained.

EM EM FX performance remains very mixed with Asia FX clearly underperforming 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 and IDR. ZAR remains the best hedge given its high beta to the Iran situation. In