EUR/USD & G10 USD Forecasts Update – Three Questions

Three Questions & potential forecast impact

1) Is the US economic slowdown real?

It’s becoming a more compelling argument. Equity market performance from here will be crucial and of course how much pass-through from tariffs to CPI. If real incomes are hit and equities slide another 5%-10%, the risks of recession will increase notably.

2) Do tariffs impact abroad not matter anymore?

Tariffs of course matter. The FX price action reflects a readjustment of the relative impact. USD/CAD and USD/MXN Look to have a degree of optimism priced – reflecting the “Trump’s a deal-maker” view that tariffs will not prove lasting. There is scope for some USD recovery if investors reappraise that relative impact.

3) Was the 10yr Bund yield reaction justified?

Yes, for sure. There are small risks that remain in relation to delivery of the proposals. We assume Green Party support and no complications in delivering the plans in the new Bundestag. Real GDP is set to be around 2.0% in 2026 versus a previous forecast of 0.8%. That justifies a 30-40bp jump in 10-year yields for now.