BofA: An eventful June with euro upside risks

Bank of America remains broadly constructive on the euro, particularly versus the USD, CHF, and JPY, as geopolitical events and fiscal developments in Europe provide tailwinds. While the EUR may look overvalued by traditional models, structural buyers and asymmetric USD risks suggest further gains are possible into the NATO and EU summits later this month.

Key Points:

• Constructive EUR View:
  BofA favors the EUR over USD, CHF, and JPY, but remains cautious against GBP and the Scandies. The EUR’s overvaluation versus traditional macro drivers may reflect strong structural demand and unusual correlations to interest rates and risk sentiment.

• Tariffs Skew Risks Toward USD Weakness:
  Even if EU faces economic headwinds from US tariffs, broad-based US tariffs weaken the USD, particularly with limited Fed room to respond. In contrast, the ECB still has room to support growth.

• EUR Supported by Reform Momentum and Fiscal Stimulus Potential:
  Structural reform momentum from the Letta and Draghi reports could be EUR-positive. German infrastructure spending, if front-loaded, adds further fiscal stimulus to support the euro.

• June Summit Calendar Is Key:
  Upside risks for the EUR are tied to:

  • NATO defense ministers’ meeting (June 5)

  • Full NATO summit (June 24–25)

  • EU leaders summit (June 26–27)
    Defense-related announcements could boost long-term investment and confidence in EU unity and fiscal direction.

Conclusion:

BofA expects the euro to benefit from geopolitical events and asymmetric USD downside risks, despite concerns around short-term overvaluation. The EUR could see renewed upside momentum into and after the NATO and EU summits, especially if defense and fiscal expansion commitments are confirmed.

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