Bank of America Global Research discusses the EUR correlation in 2023.
"For 2023, we would expect EUR correlation to broadly rise on the back of hawkish ECB driving Eurozone periphery debt risk higher. Our call for the ECB terminal rate at 3.5% suggests upside risks for periphery yields, from already elevated levels in the case of Italy. Debt dynamics could become challenging, particularly when considering Italy’s low growth potential and the need for even higher government primary surpluses than in the past. The ECB could be forced to activate the TPI (Transmission Protection Instrument), which is far from straightforward, as many technical and legal details remain vague," BofA notes.
"The correlation pair we see the most room to rise is EURUSD-EURSEK, which has implied correlation sitting at the lowest level since 2008 now. The risk to this view is that we overestimated periphery debt risk for the EU," BofA adds.