European macroeconomic conditions and G10 foreign-exchange outlook: Nomura sees resilient euro-area growth, downside risks for GBP and a tactically firmer but structurally vulnerable USD.

Overview

This client-trip note summarizes Nomura’s discussions on European growth, UK fiscal policy, JPY flows, the USD outlook and the gap between market-implied and economist rate paths. The report combines a constructive EUR view with bearish GBP positioning, a cautious medium-term USD outlook and tactical support for USD/CAD.

Core views

Nomura characterizes euro-area growth as resilient only in a relative sense: growth is around trend rather than strong, and the economist consensus expects just 0.9% year-on-year GDP growth in 2026. Nevertheless, euro-area data surprises improved after bottoming in May 2026. The report attributes the region’s resilience to a net positive, though uneven, fiscal impulse led by Germany; diversification of energy supply away from fossil fuels; and a longer-run deleveraging trend that has reduced private-sector sensitivity to interest rates. Portfolio flows into EUR were strong in June and July after turning negative in April and May, yet had little apparent positive effect on the currency. Nomura nonetheless expects economic resilience and the ability to deliver further rate hikes to support EUR. On the UK, the report argues that the late-October budget is unlikely to be more expansionary because the energy shock has raised inflation and interest rates, reducing fiscal headroom and creating a need for tightening. Nomura considers the UK more exposed to fiscal slippage than countries with more challenging fiscal metrics because it lacks the ECB’s TPI/OMT backstop and is not a major reserve-currency issuer. That market discipline should discourage looser policy, but the institution is wary of potential workarounds within fiscal rules, including greater issuance and lending by Public Financial Institutions. It sees GBP as facing greater downside risks than most G10 currencies through possible rate disappointment and fiscal-tail risks. Nomura rejects the view that these negatives are fully priced, noting GBP’s recent resilience, strength relative to cyclical factors such as rate spreads, limited fiscal stress reflected in gilt-swap spreads, and reliance on unusually strong projected M&A inflows that may fail to materialize. It therefore maintains short GBP/AUD, supported by both cyclical and structural considerations and positive carry; AUD is supported by a likely September RBA hike with a hawkish message, commodity-price support and less-extreme positioning. The report treats the early-September USD/JPY decline as not readily explained by official intervention, more hawkish BOJ expectations or reported GPIF allocation changes. Nomura notes that CTA positioning flipped from net long to net short USD/JPY, helping explain the move but not necessarily triggering it. Its working explanation is a large one-off flow after prior intervention had already satisfied substantial USD/JPY demand. More broadly, intervention by the MOF and US Treasury, faster BOJ rate hikes and possible reassessment of asset allocation by domestic investors have created more two-way USD/JPY risk than during the earlier bearish-JPY consensus. Options call-put volumes had already shifted materially toward a more positive JPY view, and subsequent COT data showed leveraged funds and asset managers turning long JPY futures for the first time since July 2025. Nomura stresses that conviction remains low: a lasting USD/JPY decline would likely require a much larger narrowing in the front-end carry differential or a clear increase in domestic institutional allocation to local assets. For USD, the note distinguishes between the near term and the medium term. Before the Fed’s 16 September rate hike, investors predominantly preferred selling USD rallies rather than buying dips, reflecting perceived downside policy risks, including concerns around JPY intervention and Fed independence. Following the meeting, Nomura believes perceived Fed-independence risk has diminished, while firm Fed-hiking expectations could support USD in coming months. It sees the clearest macroeconomic and rate divergence in USD/CAD and therefore prefers long USD/CAD as its tactical expression. Over the medium term, however, Nomura judges USD risks to be skewed toward softness because competition for global capital makes the US fiscal outlook a challenge. It also identifies a stumble in the AI trade, whether from regulation or concerns about implied future returns, as a meaningful USD risk through both growth and capital-flow channels. A potential end to Middle East conflicts before US midterm elections could also create a path to modest USD weakness. Finally, Nomura explains the divergence between market pricing and economist forecasts for central-bank policy. Markets have responded quickly to energy-price moves since March, pricing substantial hikes from several central banks, especially the ECB and Bank of England. Economists, including Nomura, have projected more modest ECB hikes and unchanged or lower Bank of England rates next year. The report attributes the difference partly to economists’ willingness to wait for a possible peace deal that could lower energy prices, as occurred after the Islamabad Memorandum in mid-June. The longer elevated energy prices persist, however, the greater the risk that central banks must tighten policy; Nomura notes that this concern is also visible in Bank of England Monetary Policy Committee commentary.

Analysis framework

Nomura summarizes client discussions and tests them against macroeconomic data surprises, fiscal conditions, energy-price effects, rate-market pricing, portfolio flows and positioning indicators. It then translates these factors into relative FX views, distinguishing tactical rate and macro divergences from medium-term structural risks.

Methodology notes

• Fixed Income and CreditYield curve analysis

  Comparison of market-implied front-end policy-rate paths with economist forecasts.

  The report uses differences between rate-market pricing and economists’ projected ECB and Bank of England paths to explain FX and policy expectations.

• Event-Driven and Behavioral FinanceFund-Flow and Positioning Analysis

  Analysis of portfolio flows, CTA positions, options activity and COT futures positioning.

  Nomura uses changes in investor flows and positioning to interpret muted EUR performance, the USD/JPY move and the degree to which JPY sentiment has already shifted.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• EUR

  Expected to benefit from euro-area resilience and potential further rate hikes.

  Strengths

  Positive fiscal impulse, diversified energy supply and lower private-sector rate sensitivity.

  Weaknesses

  Strong June and July portfolio inflows had little apparent positive impact on EUR.

  Risks

  Higher energy prices and country-specific political risks could weigh on the outlook.

• GBP/AUD

  Nomura maintains a short GBP/AUD trade.

  Strengths

  The position is described as capturing cyclical and structural themes while remaining carry positive.

  Weaknesses

  GBP relies on projected M&A inflows and faces fiscal and rate-disappointment risks.

  Comparison

  AUD is supported by a likely hawkish RBA hike, commodity prices and less-extreme positioning.

  Risks

  A stronger-than-expected GBP could emerge if negative UK views are more fully priced than Nomura expects.

• USD/JPY

  The pair has become more two-way as JPY positioning and domestic-policy dynamics change.

  Weaknesses

  A persistent decline would require a materially narrower front-end carry differential or increased Japanese domestic asset allocation.

  Comparison

  Positioning has moved substantially more positive on JPY than during the previous bearish-JPY consensus.

  Risks

  The initial catalyst for the early-September move remains uncertain.

• USD/CAD

  Nomura’s preferred tactical expression of near-term USD upside.

  Strengths

  The report sees the clearest macroeconomic and rate divergence in this pair.

  Risks

  Medium-term structural USD risks remain skewed toward weakness.

Key data

• Euro-area 2026 GDP growth consensus0.9% y-o-yEconomist consensus cited by Nomura; used to characterize growth as around trend rather than strong.
• Euro-area data surprisesBottomed in May 2026The subsequent improvement was cited by investors as evidence of relative resilience.
• JPY futures positioningLong positions for the first time since July 2025COT data showed both leveraged funds and asset managers shifting long JPY futures.
• Fed rate hike16 September 2026The report distinguishes investor sentiment before and after this meeting.
• UK budget date28 OctoberThe upcoming budget is central to the report’s UK fiscal-risk discussion.

Impact & implications

Nomura’s conclusions favor EUR support from relative euro-area resilience, downside GBP exposure through GBP/AUD, and a tactical USD-positive USD/CAD view. The report’s medium-term USD outlook remains cautious because fiscal and capital-flow risks could outweigh near-term support from firm Fed-hiking expectations.

Risks

• Persistent higher energy prices could worsen growth and increase the need for monetary tightening.
• UK fiscal slippage or market-disapproved workarounds to fiscal rules could pressure GBP.
• Projected UK M&A inflows may undershoot expectations, removing an important source of GBP support.
• A stumble in the AI trade caused by regulation or concerns over implied returns could weaken USD through growth and capital flows.
• USD/JPY could remain volatile because the catalyst behind the early-September move is uncertain and JPY conviction remains low.

What to watch

• The UK budget on 28 October and whether fiscal policy tightens sufficiently to preserve market confidence.
• Energy-price persistence, possible peace arrangements and their implications for ECB and Bank of England policy expectations.
• EUR portfolio flows, euro-area data momentum and the scope for additional ECB hikes.
• JPY options activity, COT positioning, front-end carry differentials and Japanese institutional asset-allocation behavior.
• Fed-hiking expectations, US fiscal developments and signs of stress in the AI trade.