Global FX weekly: Yen adrift as EM carries on

Research evidence excerpt

Global FX weekly: Yen adrift as EM carries on

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 extended our bullish USD view and forecasts into 3Q, and we remain stay short EUR/USD: our constructive USD view was predicated on the yawning gap between US

growth outperformance and rate differentials in early 2Q. This has narrowed, supporting USD, but there is likely further to run, especially under our base case of three Fed

rate hikes this year. Positioning & sentiment have rapidly turned bullish dollar but are still well within historical extremes, according to our metrics. We revised down our

YE ‘26 EURUSD forecast to 1.15 (previously 1.20), reflecting a reset higher in the dollar range, but keeping a more neutral medium-term stance vs. forwards. We are no

longer bearish JPY as structural outflows moderate and hedging trends begin to shift. Elsewhere, we maintain a constructive bias for GBP and the Antipodeans by year-

end, are neutral on SEK and CHF, and bearish on CAD and NOK.

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

Latam, BRL, despite its strong performance, remains cheap vs the major improvement in its terms of trade, and the same is true for NGN EMEA FX. Among CEE FX, HUF

has hugely outperformed its terms of trade thanks to the elections but has more room.

Source: BofA Global Research