The U.S. dollar has recovered some ground against the euro over the past month. However, Bank of America Securities remains positive on the EUR/USD outlook and expects the currency pair to strengthen further from the second quarter onward.
At 08:35 ET (13:35 GMT), EUR/USD was trading 0.1% higher at $1.1786. Despite the modest daily gain, the pair has declined around 0.8% over the past month.
BofA sees larger EUR/USD move from Q2
According to analysts at Bank of America Securities, the more significant move in EUR/USD is likely to materialize in the second quarter. The bank expects upward momentum to build once the peak U.S. tax-refund season passes and Germany’s fiscal stimulus becomes more visible in economic data.
The analysts note that timing is key. Seasonal dollar support linked to tax-related flows may fade, while improved eurozone fiscal dynamics could provide additional backing for the euro.
Risks to the bullish EUR/USD outlook
The main risk to this forecast would be a faster and sharper rally if structural buying from European investors accelerates. This could occur through increased sales of U.S. assets or more active adjustments to hedge ratios.
So far, however, market price action, capital flows and hedging activity show limited evidence of such structural demand. The January rally in EUR/USD displayed unusual time-zone dispersion, with most of the gains occurring during U.S. trading hours. This suggests that U.S.-based investors, rather than overseas buyers, were the primary drivers.
Although EUR/USD initially advanced during European sessions earlier in the year, those gains were partially reversed in February. In addition, weakness during Asian trading hours indicates that portfolio rebalancing flows have outweighed diversification-driven buying.
This pattern aligns with the bank’s broader foreign exchange flow indicators, which show little sign of investors aggressively reducing exposure to U.S. assets.
Global capital flows and the dollar outlook
At the same time, relative equity performance suggests that marginal capital is gradually shifting toward non-U.S. markets. EPFR data show that the U.S. share of global equity inflows so far in 2026 is at its lowest level since 2020.
Bank of America describes the current trend not as “sell America,” but rather “do not buy America.” This distinction implies a slower pace of U.S. dollar depreciation, rather than a sharp decline driven by capital flight.
Overall, Bank of America Securities maintains a constructive medium-term outlook for EUR/USD, with stronger gains expected to emerge from the second quarter as macro and flow dynamics evolve.
