Bank of America stated that rising energy prices and the risk of global stagflation provide support for the US dollar in the short term. However, fiscal risks and a potential weakening of the US labor market are expected to weigh on the currency in the second half of this year. "Near-term upside risks for the dollar remain, but market sentiment can be fickle," strategists Alex Cohen and Michais Rousakis wrote in a report on Tuesday. "Beyond short-term war and oil price drivers, markets still need to contend with risks such as a potential softening in the US labor market, volatility in private credit, and a resurgence of fiscal concerns." "From a longer-term perspective, the evolving geopolitical landscape will continue to raise questions about the optimal allocation of dollar risk exposure," they added. The team maintains a bearish outlook on the euro/US dollar pair, forecasting it to reach 1.14 by the end of the second quarter, with risks skewed to the downside. "We expect the euro/US dollar to climb to 1.20 by year-end, provided the Federal Reserve does not raise interest rates, energy prices normalize, and US and eurozone economic growth gradually converge," they said.
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