Bank of America continues to hold a short position in EUR/USD, arguing that the Dollar’s resilience despite narrowing short-term interest-rate differentials is an encouraging signal for Dollar bulls.
The gap between US two-year interest rates and the DXY currency basket narrowed by around 13 basis points following softer inflation data and stronger expectations of rate increases in other economies. However, the resulting decline in the Dollar was relatively limited.
Bank of America believes that medium-term growth prospects and five-year real bond yields currently explain currency movements better than short-term market spreads. US real-rate differentials remain elevated, while the American economy continues to show greater resilience than many other major economies. The bank said bullish positioning toward the Dollar remains “far from historical extremes,” suggesting that investors still have room to increase their Dollar exposure despite the shift in sentiment following the Federal Reserve’s June meeting.
Bank of America economists continue to forecast three Federal Reserve interest-rate increases during the second half of 2026, while markets currently price in significantly less monetary tightening. The bank therefore maintains its three-month EUR/USD put spread targeting the 1.15–1.13 range, citing diverging US and Eurozone economic data, energy-price risks and supportive technical signals.
Bank of America forecasts EUR/USD at 1.12 by the end of the third quarter, followed by a recovery to 1.15 by year-end and 1.20 by the end of 2027. The bank remains cautious on the Euro during the summer but holds a more constructive medium-term outlook as US and Eurozone growth rates begin to converge.
