Synopsis:

BofA highlights that EUR sentiment has turned decisively bullish in 2025, with upside risks to already-strong forecasts as EU fiscal and trade dynamics evolve. They see EUR benefiting more than the USD from the global trade reset.

Key Points:

• Stronger Sentiment: EUR sentiment has improved sharply since early 2025, supported by structural fiscal reforms and trade diversification efforts in the EU.

• Tariff Dynamics Favor EUR: While reciprocal tariffs weigh on both the US and EU, BofA argues the economic drag will be greater for the US, leaving relative growth and inflation differentials EUR-supportive.

• Reform & Issuance Tailwinds: German-led fiscal paradigm shift, EU-wide stimulus, and the potential for more joint EU bond issuance are identified as key bullish catalysts.

• Asset Reallocation: Ongoing rotation of capital into Europe and rising FX hedging by European asset managers could support the euro further. Real Money investors have not yet fully engaged, leaving scope for further inflows.

• Forecasts & FX View: BofA maintains EUR/USD targets at 1.15 this year and 1.20 in 2026, with potential upside revision. While bearish on EUR vs. GBP and high-beta currencies (like AUD/NZD), they remain bullish EUR vs. USD, JPY, and CHF.

Conclusion:

BofA sees the EUR entering a new phase of structural support from fiscal reform, improving external positioning, and a relatively less exposed trade stance. The EUR’s goalposts are moving higher, and while short-term volatility remains, the strategic tone is one of sustained EUR appreciation—especially against the USD.