The baseline outlook for the EUR remains bullish, as it stands as the second most liquid currency globally, particularly gaining favor when the USD loses market appeal. In contrast, the CHF remain the best funding currency among the G10 FX, despite the recent strength from uncertainty environment.

EUR: Quo vadis?

As highlighted in recent weeks since the onset of the "Liberation Day" rally, the strength of the EUR has been primarily driven by the "sell America" narrative, owing to the euro’s status as the second most liquid global currency and its role as a preferred alternative to the U.S. dollar in FX reserves. However, with recent positive developments in U.S. trade policy (as outlined in the USD section), the EUR's momentum may begin to fade, especially as most EUR crosses appear overvalued and technically overbought. Consequently, market participants may take this opportunity to unwind EUR hedges and lock in gains before the next leg higher.

That said, over the medium to long term, the EUR remains fundamentally supported. Germany’s sovereign bond market is expected to expand more significantly than previously anticipated, following the announcement of a EUR 1 trillion fiscal spending package focused on infrastructure and defense. This, combined with a potential U.S. economic slowdown, the Trump administration's apparent preference for a weaker dollar, and increased fiscal stimulus within Germany, may underpin a gradual appreciation of the euro—though such a trend is more likely to materialize in 2H25 or later.

Looking ahead, the Eurozone calendar is relatively light, featuring only final PMIs and April retail sales. Additionally, EU envoys are scheduled to visit Washington, D.C. for trade discussions with their U.S. counterparts. Markets will closely monitor any official statements from these meetings for signs that a trade agreement may be nearing. As such, the combination of ongoing trade uncertainty with the U.S. and the EUR’s recent aggressive rally poses short-term downside risks to the euro.

In summary, while the medium- to long-term outlook for the EUR remains constructive, a cautious stance is warranted in the short term due to recent global trade optimism, which may reduce immediate euro appeal.

CHF: Holding vigil

The CHF ended up as the top performer in the G10 FX space in April, primarily driven by the U.S. ‘Liberation Day’ event and the surge in safe-haven demand amid global uncertainty. However, the recent de-escalation in tariff threats has likely given the CHF a breather. While global developments remain the primary driver for the franc in the near term, attention may briefly turn to domestic data, which tends to be front-loaded at the start of each month.

On Monday, April CPI will be closely watched to determine whether inflation continued to decline, potentially threatening a return to negative prints. This trend is largely due to weaker energy prices and a stronger CHF. However, as long as inflation remains below 2% or within the SNB’s projection range (~0.4%), it is unlikely to pose any immediate challenge to policy. On the other hand, the threat of U.S. tariffs on Swiss pharmaceutical exports may weigh on the franc, as it adds to uncertainty around Swiss trade performance.

Overall, barring any major domestic data surprises or a sudden resurgence in global risk aversion, the CHF may gradually give back part of its April gains. Furthermore, the old market adage “sell in May and go away” has historically not shown a strong seasonal bias favoring CHF.