The Euro has surged against the dollar this week with the Euro to Dollar (EUR/USD) exchange rate jumping to 4-year highs above 1.1930.
The dollar will rebound at times, but Bank of America (BoA) expects the currency will lose further ground during the year as yield support is eroded further.
BoA forecasts that EUR/USD will strengthen to 1.22 at the end of this year with a further advance to 1.25 at the end of 2027.
Although immediate fears surrounding the Greenland situation have eased, President Trump has threatened to impose additional tariffs on Canada and South Korea.According to BoA, these tensions tend to undermine the dollar and benefit the Euro in global markets.
Increased pressure for European NATO members to boost defence spending will also feed through into a wider boost to fiscal spending.
This spending will tend to underpin the Euro-Zone growth outlook which will deter any further ECB rate cuts and underpin the Euro.
As far as the US is concerned, the bank expects that the Federal Reserve will continue to cut interest rates which will maintain underlying downward pressure on the dollar, especially as there will be a reduced cost to hedging US exposures.
