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Euro stabilizes ahead of ECB decision as hedge unwinding supports EUR

BNY’s Geoff Yu said cross-border hedging is declining and net exposure to Eurozone assets is at the highest level in more than two years, though forward and swaps demand is still weak.

Reported · Written up by our desk · Major Pairs

BNY’s Geoff Yu said the euro is stabilizing ahead of the European Central Bank decision, supported by improving spot flows and hedge unwinding that is bolstering Eurozone asset sentiment. He added that the recovery remains incomplete because forward and swaps demand is still weak, limiting conviction in sustained gains in EUR holdings.

Yu noted that hedge unwinding is the clearest source of EUR resilience, with cross-border hedging continuing to decline and net exposure to Eurozone assets at its highest level in more than two years. He said onshore investors have not yet moved into forward-buying EUR, which he views as a constraint.

In the cross-currency picture, Yu said EUR/USD is drawing light bids but the overall flow signal is thin. He said EUR/GBP looks more attractive on a risk-reward basis given under-owned positions and potential improvement if pound momentum fades, even though EUR/GBP faces net sales this week.

Latest closeEUR/USD 1.141 ▼0.0%

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