The euro has fought its way back from close to parity against the dollar after notching its second-straight weekly win as bets on a Ukraine peace deal have renewed demand for the single currency, with hedge funds leading the way, strategists from BofA said in a recent note.
“EURUSD demand, led by HF, stands out amid Ukraine/Russia geopolitical backdrop,” BofA strategists said in a Liquid Cross Border Flows report released Monday.
The change in sentiment comes just as U.S. President Donald Trump’s administration announced on Tuesday that it would further talks with Russia on ending the Ukraine war following lengthy talks in Saudi Arabia.
This renewed demand has seen the EUR fight its way back from near parity versus the USD after falling to a recent low of $1.0146.
Surprisingly better-than-expected EU economic data have also played a role in turning the tide of negativity that was clouding the single currency.
“The euro area economy has started to positively surprise depressed expectations,” MRB Partners said in a recent note.
“This should persist as the euro area economy firms in the months ahead, and will ultimately support a downgrade to euro area bonds within a global fixed-income portfolio,” it added/
Still, the overarching conviction for hedge funds remains dollar-long at a time when concerns about a prolonged delay to Fed rate cuts continue.
“USD positioning is still long, especially for Hedge Funds, and seemingly it also remains perceived as such,” BofA said.
