Global FX: Contemplating a rotation amongst funders; outlook for BRL

Brazil’s recent election results have shifted market sentiment, with Jair Bolsonaro’s stronger-than-expected performance fueling optimism for fiscal reform and reinforcing the BRL and COP as primary carry trade vehicles. Meanwhile, persistent volatility in French OAT spreads keeps the Euro vulnerable, prompting a potential rotation among FX funders away from traditional choices like the Swiss Franc and Swedish Krona. AI adoption is increasingly influencing currency performance, providing a sentiment boost to countries like Australia and the UK, which show positive growth correlations beyond the US. Despite global yield pressures, the British Pound remains resilient, supported by a favorable growth outlook and stable fiscal risk premiums. Investors are monitoring upcoming US CPI data as a critical catalyst for dollar direction, while maintaining a cautious stance on currencies lacking clear AI-driven growth or carry advantages.