Summary of G10 FX Strategy Conference Call Industry Overview - The conference call focuses on the G10 foreign exchange (FX) market, analyzing various currencies and their economic indicators, flows, positioning, and drivers. Key Points by Currency US Dollar (USD) - **View**: Bearish - **Core Argument**: A compression in rate differentials and a USD-negative risk premium are the main drivers behind the bearish outlook on USD. The convergence of US and rest-of-world (RoW) rates, along with increased risk premium due to higher FX hedging, is expected to weigh on USD, especially as Federal Reserve (Fed) cuts materialize [21][2][64]. - **Current Account**: The US current account deficit stands at 4.6% of GDP, driven by high consumption and government spending, indicating a widening trend [69]. Euro (EUR) - **View**: Bullish - **Core Argument**: EUR/USD is expected to maintain an uptrend due to US rate convergence and increased FX hedging by investors. Political risks remain a significant factor to monitor [3][22]. - **Current Account**: Europe's current account surplus has recently declined, primarily due to changes in the income balance [108]. British Pound (GBP) - **View**: Bullish - **Core Argument**: GBP benefits from a high carry-to-volatility ratio, making GBP/USD a key expression of USD weakness, particularly if Fed and Bank of England (BoE) rates diverge [4][23]. - **Current Account**: The UK's current account deficit has stabilized but is financed by more volatile 'other investment' [150]. Japanese Yen (JPY) - **View**: Bullish - **Core Argument**: JPY appears undervalued against its implied fair value due to speculative short positioning amid resilient risk sentiment. However, weak US data could alter this outlook [5][24]. - **Current Account**: Japan's current account remains positive, with a narrowing trade deficit [190]. Swiss Franc (CHF) - **View**: Neutral - **Core Argument**: A bearish skew is maintained due to an unfavorable carry profile, but concerns over US tariffs are seen as overblown, providing some near-term support for CHF rates [6][25]. - **Current Account**: Switzerland's current account surplus remains high, driven by a strong goods surplus [230]. Norwegian Krone (NOK) - **View**: Neutral - **Core Argument**: A bearish skew is retained due to a significant oil surplus expected in 4Q25 and 1Q26, alongside a lower trough rate for Norges Bank than currently priced [7][261]. - **Current Account**: Norway's current account surplus continues to benefit from oil and gas exports, although it has decreased from recent highs [267]. Swedish Krona (SEK) - **View**: Neutral - **Core Argument**: A near-term headwind is expected from a potential Riksbank cut, but medium-term factors suggest strength for SEK [8][298]. - **Current Account**: Sweden's current account surplus is recovering, supported by trade and income balance [304]. Australian Dollar (AUD) - **View**: Bullish - **Core Argument**: Re-accelerating CPI raises the likelihood that the market will not price a sub-3.5% RBA trough rate, maintaining attractive carry [9][334]. - **Current Account**: Australia's current account has shifted to a deficit recently due to increased goods imports [338]. New Zealand Dollar (NZD) - **View**: Neutral - **Core Argument**: The RBNZ's trough rate pricing has decreased to 2.5%, reflecting a slow recovery from a deep growth hole compared to late 2021 [10][376]. - **Current Account**: New Zealand's annual current account deficit has been narrowing since peaking in 2022 [381]. Additional Insights - **Market Positioning**: Options data indicate that the market is most long SEK and most short JPY, with significant CHF shorts and EUR longs [45]. - **Inflation Trends**: Core inflation has slightly re-accelerated in Australia, the UK, and Sweden, which could influence monetary policy decisions [60]. - **Monetary Policy Expectations**: The Fed is expected to resume its cutting cycle, while the ECB's terminal rate is anticipated to be lower than consensus forecasts [92][132]. This summary encapsulates the key insights and projections regarding the G10 currencies, highlighting the macroeconomic factors influencing their performance and positioning in the FX market.