Global Rates: Cross currency basis 4Q25 outlook
At a Glance
The desk's thesis emphasizes a mix of widening cross-currency bases driven by the evolving interest rate expectations in the Eurozone and the US. Per the full note from J.P. Morgan Global Research, the dynamics of the €STR/SOFR basis are pivotal as they illustrate the relationship between the euro and dollar. Current shifts in positions appear noteworthy, as traders anticipate further Fed dovishness and ECB adjustments mid-2026, likely impacting cross-currency spreads significantly.
Key Takeaways
- 01The desk anticipates widening cross-currency bases impacting EUR/USD dynamics.
- 02Interest rate expectations are pivotal in driving trade positioning through 2026.
- 03Consensus targets show bullish sentiment reflecting the strength of the euro.
- 04Monetary policies from ECB and Fed significantly influence market outlook.
Full Analysis
What the desk is arguing
The desk asserts that the interplay between €STR and SOFR cross-currency bases will significantly shape EUR/USD valuations moving into late 2025 and beyond. Recent discussions by J.P. Morgan highlight how interest rate differentials are likely to widen the basis and consequently influence trading positions on the pair.
Furthermore, it is critical for dealers to note that positioning adjusts with the expectation of ECB policy persisting amid Fed dovish narratives. The trends observed in the bases suggest a pronounced sensitivity to shifts in monetary policy that may profoundly reshape spot values.
Where it sits in our coverage
For our EUR/USD coverage, the current consensus target sits at 1.1700, with a range spanning from 1.1200 to 1.2000. Significant targets from selected institutions include: - morganstanley: Mar26 1.2000 - deutschebank: Jun26 1.2000 - jpmorgan: Mar26 1.1800
This viewpoint aligns closely with jpmorgan and others at the higher end of this spectrum, indicating strong bullish sentiment towards the euro against the dollar in the medium term.
How other firms see it
Several firms echo the desk's outlook, with notable bullish sentiments from morganstanley, targeting 1.2000 by March 2026, which bolsters an aligned growth perspective. In contrast, citi trades at a more cautious stance at 1.3200 for the same tenor, highlighting a divergence in sentiment.
Important to note, the EUR/USD trajectory mirrors ECB's rate path, emphasizing the interconnectedness of these economic indicators as traders position for changing monetary winds.
Market Implications
Watch for the EUR/USD to react to further monetary guidance from the ECB, especially as the consensus target indicates a potential rally. The current spot at 1.1466 positions traders for a breakout towards 1.1700, contingent on favorable signals from European rate adjustments.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
In this podcast Khagendra Gupta and Ipek Ozil discuss the drivers of €STR/SOFR cross currency bases. Speakers: Ipek Ozil, Head of US Interest Rate Derivatives Strategy Khagendra Gupta, Head of European Interest Rate Derivatives Strategy This podcast was recorded on 3 October 2025
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