Global Rates & FX Views: Global bond selloff & credit impact
The desk anticipates continued volatility in the FX landscape, particularly influenced by the recent global government bond sell-off and its ramifications for credit markets. Per the full note from BofA Global Research, the potential actions from the Fed and Treasury to mitigate bond market impacts could create a ripple effect across FX pairs, notably EUR/USD, GBP/USD, and USD/JPY. This environment sets the backdrop for continued divergence in consensus targets against current spot prices, with investor positions now a critical focal point. Given that no high-impact calendar events are expected in the near term, traders should closely monitor any shifts in central bank rhetoric to gauge near-term trends.
What the desk is arguing
The desk believes that the inversion in global bond yields will exert greater pressure on FX pairs, with a particular emphasis on EUR/USD, GBP/USD, and USD/JPY. This sentiment comes in response to the ongoing sell-off in government bonds, as highlighted in the recent discussions by BofA Global Research, which noted the positioning across these markets could weigh on broader credit activity.
As investor nervousness escalates, we observe potential shifts in USD support levels, particularly given the Fed's upcoming deliberations. Current positioning suggests a possible re-evaluation of the dollar's strength amidst fluctuating yields, which remains consistent with prevailing trends in government bond markets.
Where it sits in our coverage
Our consensus for EUR/USD sits at a median target of 1.1600, with anticipated ranges from firms like BofA at 1.1500 and Rabobank at 1.1800. For GBP/USD, the median target aligns at 1.3550, with BofA and other firms similarly placing forecasts in this geographic vicinity, reflecting continued divergence based on bond market dynamics close to current spot levels.
This positioning comes as the desk asserts a conviction that the current consensus reflects either over-leveraged bearishness on the USD or an optimistic outlook on European currencies absent significant economic catalysts. BofA’s forecast sits within the broader context of potential near-term volatility, acting as a critical counterpoint in the evolving landscape.
How other firms see it
Various research firms have signaled alignment with our views, echoing concerns regarding credit market impacts and the subsequent repercussions on FX dynamics. Notable aligned firms include Rabobank and HSBC, both positioned favorably towards a stronger Euro amid rising bond yields, while contrary sentiments arise from SocGen and Nomura, advocating for a more cautious stance on EUR and GBP strengths.
The trajectory of EUR/USD is expected to intersect with potential shifts in ECB policy, mirroring dynamics seen in the broader credit landscape. Additionally, movements in USD/JPY may correlate closely with shifts in the Bank of Japan's monetary policy outlook, providing nuanced perspectives on overall market sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Continued global bond sell-off impacts FX volatility, especially in major pairs.
- 02Investor positioning now crucial for understanding future currency trends.
- 03No major economic events on the horizon; central bank rhetoric may drive movements.
- 04Consensus targets diverging, reflecting uncertainty in USD strength against European currencies.
Market implications
Traders should keep a close eye on USD/JPY levels around 155, where we could see a reversal depending on BoJ signals. Likewise, with EUR/USD hovering near 1.1253, any shifts in ECB communication regarding bond implications could serve as a key barometer for near-term price action.
Risks to this view
Risk factors include unexpected central bank interventions, shifts in inflation data, or major geopolitical developments that could rapidly alter the market's current outlook, potentially invalidating bearish sentiments towards USD while fostering support for other currencies.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Please join Sphia Salim in discussion with Ralf Preusser and Meghan Swiber alongside our colleagues from credit (Neha Khoda, Head of US credit strategy and Barnaby Martin, Head of European credit strategy). We will explore the nature of the recent extension in the global govt bond sell-off, where positioning is, what the Fed & US treasury could do slow the moves and finally whether this is starting to weigh on pockets of the US and European credit markets. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.
Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. ©2026 Bank of America Corporation. All rights reserved.
Sources & References
How we cover this story
Related news on this pair
Euro struggles as French fiscal concerns and firm US Dollar dominate
French fiscal deterioration coupled with USD strength narrows EUR/USD support; monitor French bond spreads for contagion risk to broader eurozone credit.
EUR/USD Weekly Forecast: US Dollar persistent demand hints at a test of 1.1000
Persistent USD demand signals potential EUR/USD downside to 1.1000, suggesting dollar strength may be structurally underpinned rather than tactical.
Here's how much stocks could fall if the Democrats sweep Congress as expected, according to BofA
Democratic sweep probability threatens risk appetite, likely to trigger USD and JPY strength as equities face selling pressure and capital rotates to safety.