Bank of America Global Research maintains a bullish bias on the USD over the coming months.
"FX is a relative concept, meaning that what matters for EURUSD is the FED vs the ECB relative monetary policies. Just few weeks ago, the market was expecting the Fed to pause because of weak data and the tightening of financial conditions. Back then, we argued strongly against this view, because the economy will need to weaken if inflation is to come down. Since then, labor market data and inflation came out strong, suggesting the US economy is still overheating. With the Fed being much more hawkish than the ECB, we remain bullish on the USD,' BofA notes.
"Ultimately, we continue to expect USD to remain on the stronger side in G10 as the Fed remains on its rate hiking cycle this year. 1.05 remains our focal point for EUR-USD for the rest of the year, especially as the ECB looks set to embark on hikes. The core FX dynamic, of higher inflation being perversely positive for currencies as price pressures push central banks into tightening policy, remains in place. Given the global nature of inflation, considerable additional strength in USD could be unwelcome by policymakers outside the US, for whom a weaker currency would be another impetus towards higher inflation," BofA adds.