Euro Set to Outperform Pound, Dollar and Yen - Nomura

Nomura strategists' latest view indicates that the euro is poised to outperform the British pound, the US dollar, and the Japanese yen in cross trades, with the core logic resting on the eurozone's relatively healthier fiscal and debt fundamentals. The strategists believe that the UK's fiscal fragility is significantly higher than that of the eurozone, while eurozone bonds continue to attract strong foreign inflows, and debt dynamics are more favorable, providing structural support for the euro.

**Fiscal and Debt Divergence as the Core Driver**

Nomura emphasizes that the fragility of the UK's fiscal position makes its currency more susceptible to shifts in risk appetite and rising financing costs. In contrast, the eurozone's overall debt dynamics are more robust, with foreign demand for eurozone bond allocations remaining strong, which to some extent offsets the disturbance from individual member states' fiscal risks. Based on this, the strategists judge that the euro has a foundation for medium-term strength against the pound.

**Dollar and Yen Lack Conditions for Synchronized Strength**

On the dollar side, market concerns over Fed policy independence and the US economic outlook continue to weigh on the dollar's performance. According to data from the US Commodity Futures Trading Commission, the market has maintained a net short dollar position since April 2025, with investor pessimism on the dollar's outlook yet to reverse. As for the yen, despite recent phase-specific buying driven by changes in Japan's political landscape, Nomura believes the euro's relative advantage in cross trades remains unchanged. As of writing, EUR/GBP is trading around 0.8567, with the market awaiting further fiscal and monetary policy signals to validate this assessment.

**View Requires Attention to Policy Pace Changes**

Nomura's assessment is a medium-term strategic outlook, not a precise prediction of short-term trading levels. If UK fiscal consolidation exceeds expectations, or if new fiscal divergence pressures emerge within the eurozone, the euro's advantage over the pound could be weakened. Meanwhile, if the yen accelerates its strength due to a Bank of Japan policy shift or global capital reallocation, it could also temporarily disrupt EUR/JPY cross trade trends.