Insights & Research

Mizuho EMEA G4 Rates & FX Monthly Forecast

Sharing with you our G4 Outlook for March 2025:

Head here for Mizuho FX, policy and rates forecasts, Mizuho calls, Market themes and Event risks ahead.  Key market views include:

• USD up and down in 2025. Tariffs to drive the final leg of USD strength, to then be faded in late Q2. Short duration, too-many cuts priced, steeper curve into 10s (driven by long end). Wider swap spreads - add on dips. Risk: equity sell-off, UST refunding/term out of debt being pushed to 2026, US growth underperforming.
• EUR/USD rightly headed higher on German story, but tariffs knock it lower in April. To then be bought into year-end thanks to MEGA, Ukraine, defence issuance flows. Use the tariff-led rally to be short duration. Too-little cuts priced to drive the steepening in the near-term, later it will be an issuance story. Tighter swap spreads, wider OAT-Bund spread but resilient peripherals. Risks: Eco data outperforming, slow pace of spending.
• GBP to be one of the underperformers in 2025, but it’s a Q2 story with post April NI tax hike data to force a more dovish BOE in June’s meeting. Wait for a pullback to buy front-end/be long duration, steeper curves (frontend led), too-little cuts priced in. Risks: second round inflation after goods inflation and BoE doesn't cut as we expect or even less than markets, RM community hesitant to be overweight Gilts, wider GBP swap spreads.
• Shunto coming in stronger than expected – making a July hike by the BOJ more likely. Long end has sold off a lot so it might become more rangebound. In that near-term fade, flattening of 2s10s as 2y remains anchored but 10y sees buying (markets maybe ahead of itself + domestics). Then steepening as the structural story gains traction. Tactical long in JPY duration, pricing of hikes about fair, flattening and then steepening. Risks: Stronger JPY and US tariffs.