USD: Bearish
The bank expects a weaker USD in the medium term due to anticipated Fed rate cuts and slower US growth. But downside is somewhat balanced by the fact that a significant amount of easing is already priced in (approximately 190bps). Risks include the potential for slower-than-expected Fed easing and uncertainties around the upcoming US elections, which could impact the USD in either direction.
EUR: Neutral to Bullish
Bank expects the EUR to appreciate against the USD, with a year-end EURUSD forecast of 1.12. They base their view on expectations of US disinflation supporting Fed rate cuts. The EUR is likely to perform better against CHF and CAD due to relative ECB policy, but may not gain much against GBP. Cautious on the Eurozone’s economic data though, particularly concerning weaker performances in Q3.
JPY: Bearish
The bank holds a bearish view on the JPY, forecasting USD/JPY to reach 155 by end of the year. Driven by carry trades and structural Japanese outflows, with Japanese investors continuing to seek higher yields abroad. Despite potential risks from global geopolitical tensions, the underlying factors are expected to keep the JPY under pressure.
GBP: Bullish
BofA expects the GBP to strengthen, particularly against CHF, supported by lighter positioning and favorable relative monetary policy. The bank highlights improving UK economic data, which aligns with the expectations of a shallow easing cycle by the BoE, with a potential rate cut in November. GBP is also expected to benefit from the UK’s economic resilience in the face of global risks.
AUD: Bullish
The AUD is favored over NZD and CAD, with expectations of continued strength due to supportive global risk sentiment. The RBA is expected to maintain steady policy, pushing back against market expectations of rate cuts, which the bank expects to further support the AUD.
