BNY’s Geoff Yu argues that the Euro (EUR) offers limited risk-reward compared with Eurozone assets as European Central Bank (ECB) policy pivots back toward growth.
He notes EUR exposures are unusually high because hedge ratios have fallen sharply, even while equity and bond ownership remains subdued
Yu expects an ECB pullback to support Eurozone assets and drive a rebuilding of currency hedges rather than a sustained EUR rally. Currency exposures outpace asset ownership “The EUR is holding its ground heading into the ECB decision. There are already tentative signs of recovery, and we maintain the view that a pro-growth message from the ECB is far more beneficial to the Eurozone economy.
Governing Council rhetoric is clearly shifting in that direction, with some major exceptions, and guidance in that direction would encourage further rotation back into the Eurozone.” “We remain cautious on chasing EUR outright, however. Our analysis indicates that current net EUR exposures are at the highest levels since 2024 and there has been decoupling in currency performance relative to ownership. By netting off the cross-border EUR holdings position (normally net short to reflect hedges) against changes in a standard 60:40 sovereign bond/equity portfolio, we can track the change in EUR exposures relative to portfolio performance.” “Recently net exposures have surged into positive, which is a rarity.