Adam Vincent

While the Euro is rising on scaled-back Fed rate hike expectations, rising natural gas prices could weigh on the currency. Currencies without a commodity overhang, such as the Norwegian Krone, are better expressions against US dollar weakness.

Vincent states the Bank of England is "increasingly dovish" and the data is "set for a march cut." He believes the market may see a second cut later in 2026. He also notes "political risk" and that these factors could "keep down pressure" on the currency. Interest rate cuts generally weaken a currency by lowering the yield available to foreign investors. With the BoE moving faster/more dovishly than previously expected (validating the disinflation narrative), the Pound Sterling (GBP) faces downside pressure against peers. SHORT FXB (British Pound proxy). If inflation data surprises to the upside, the BoE may be forced to hold rates, causing a sharp rally in the Pound.

Vincent notes that "Europe's previous weakness is lack of exposure to I.T. is now acting as a strength." He highlights that the FTSE 100 ("The Footsie") and European stocks are near record highs because they offer "cyclical, commodity exposure, [and] a strong financial sector." Conversely, "software stocks coming under pressure continues to be a theme" due to fears over AI displacement and CapEx efficacy. Investors are actively rotating capital. They are fleeing the uncertainty of the "AI Displacement" narrative in the US (specifically software/growth) and seeking safety in the "Old Economy" composition of European and UK indices. The lack of tech in Europe protects these indices from the current tech-centric volatility. LONG European/UK Indices (Cyclicals/Financials) and SHORT/AVOID US Software/Growth Tech to play this rotation. A sudden positive shock in AI productivity data or a reversal in US tech sentiment could unwind this rotation rapidly.