Synopsis:

Barclays sees a growing probability that EUR/USD breaks above 1.15 in the coming months as a result of curve steepening driven by rising US risk premia and global structural shifts. However, they remain cautious about the sustainability of such strength.

Key Points:

• US Curve Steepening Signals Dollar Risk: Historically, a steeper US yield curve has accompanied USD weakness, often tied to expectations of Fed easing. Currently, the steepening reflects broader risk premia related to US policy volatility.

• Global Contributions Matter: Non-US drivers—such as Japan’s policy direction and Dutch pension reforms—are also exerting pressure on global bond curves, contributing to broader dollar weakness.

• Market Nervousness Creates USD Headwinds: Barclays warns that elevated bond market volatility and persistent policy uncertainties will maintain pressure on the dollar, favoring EUR/USD upside toward 1.15.

• Medium-Term Caution Persists: Despite the bullish near-term setup, Barclays questions whether EUR/USD above 1.15 is sustainable, citing:

  • Stronger-than-expected US macro data

  • Tariff retracement to pre-Liberation Day levels

  • Resilient US fiscal impulse

  • Hedge ratio normalization

  • Overcrowded bearish USD positioning

Conclusion:

Barclays expects EUR/USD to push toward 1.15 in the near term on steepening yield curves and policy-driven USD risk premia, but sees limited scope for further sustainable upside given improving US fundamentals and overly bearish USD sentiment.