Hedge funds are leading a renewed euro rally as optimism over a potential Ukraine peace deal fuels fresh demand for the single currency, according to a report by Investing.com citing Bank of America (BofA) strategists.
In its Liquid Cross Border Flows report, BofA highlighted that hedge funds have been the dominant buyers of EUR/USD amid shifting geopolitical sentiment.
“EURUSD demand, led by HF, stands out amid Ukraine/Russia geopolitical backdrop,” BofA strategists wrote.
The euro’s recovery from near parity against the US dollar has gained momentum, marking its second consecutive weekly win. The currency recently climbed from a low of $1.0146, signaling a sharp reversal in sentiment.
The shift in hedge fund positioning coincides with diplomatic developments, as the Trump administration announced fresh negotiations with Russia in an effort to broker a Ukraine peace deal following recent discussions in Saudi Arabia.
In addition to geopolitical optimism, stronger-than-expected EU economic data has contributed to the euro’s rebound.
“The euro area economy has started to positively surprise depressed expectations,” MRB Partners noted in a recent report. “This should persist as the euro area economy firms in the months ahead, ultimately supporting a downgrade to euro area bonds within a global fixed-income portfolio.”
Despite the euro’s gains, hedge funds remain net long on the US dollar, driven by concerns over a prolonged delay in Fed rate cuts.
“USD positioning is still long, especially for hedge funds, and seemingly it also remains perceived as such,” BofA added.
