BofA highlights that corporate hedging behavior in G10 FX, particularly in EUR/USD, may shift meaningfully if the euro continues to strengthen. Corporates appear underhedged against EUR exposure, and further euro gains could prompt catch-up hedging, influencing spot markets.

Key Points:

• Corporate flows dominate BofA’s proprietary FX flow data, but have been relatively light and directionless so far this year, suggesting a wait-and-see stance despite price moves.

• BofA identifies a notable negative EUR exposure among corporates, meaning many are short EUR or reliant on weak EUR scenarios.

• That negative exposure has slightly increased in 2025, implying limited proactive hedging despite EUR/USD appreciation.

• If EUR/USD strength persists, corporates may be forced to hedge more actively, potentially reinforcing EUR upside in a nonlinear and counterintuitive way due to flow imbalances.

Conclusion:

Corporate FX exposure in EUR/USD is a latent market driver. If the euro continues to rally, underhedged corporates may accelerate demand for EUR hedges, introducing a positive feedback loop that could drive further EUR strength, especially in thin liquidity environments.

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