The USD is experiencing a near-term rally fueled by Iran war tensions and oil price inflation, though BofA maintains a medium-term view that the currency is overvalued.
Key Takeaways
- 1.USD is seeing near-term strength due to the impact of the Iran war on oil prices and inflation concerns.
- 2.Despite near-term strength, the USD is considered overvalued with a medium-term expectation for downside.
- 3.Forecasts for JPY and NZD have been revised while major pairs like EUR-USD remain unchanged in the baseline view.
Table of Contents
- Key takeaways
- G10 FX jitters grow as war impacts stretch into summer
- USD: underpriced upside risks and the limits of policy divergence
- EUR: cautious until we get more clarity around the war and Hormuz
- Forecasts: more USD upside into Q2, before depreciation resumes
- Risks: Iran, Inflation, but also keep an eye on trade headlines
- Notable Rates and FX Research
- Rates, FX & EM trades for 2026
Document Preview
Access the Full Report
Get unlimited access to institutional research reports with a 14-day free trial.
Authors
John ShinAlex CohenMichalis Rousakis
Securities
EURUSDUSDJPYDXY
Themes
Geopolitical impact on FXPolicy Divergence vs ConvergenceDollar Overvaluation
Regions
GlobalEuropeNorth AmericaUnited StatesJapanIran