BofA's latest report delves into the variances in investment flows that have shaped the trajectory of the USD this year. Unlike the previous year, where there was a distinct and unanimous thrust towards USDEM FX buying up to 3Q, this year's narrative is marked by more diverse regional attitudes.
Evolving Regional Patterns: This year's investment backdrop lacks the unified theme of the previous year. BofA's investors, regardless of region, have largely divested from EUR and CHF. Beyond this, the consensus ends.
Differing Stances on USD and LatAm FX: Investors based in Asia have been the primary propellants behind the USD and LatAm FX. In contrast, AMRS investors have approached these currencies with caution.
Contrasting Views on JPY and GBP: JPY has found favor with AMRS and EMEA investors, but Asian investors have divested. The GBP, which faced a significant sell-off from EMEA investors last year, has seen a resurgence in buying this year.
Varied Sentiments on EM FX: AMRS investors have exhibited an inclination towards EM FX across all regions (with a reduced emphasis on LatAm). EMEA investors, on the other hand, have majorly divested, while Asian investors have leaned into LatAm but pulled away from EMEA EM.
Driving Forces of the Recent USD Rally: The recent ascendancy of the USD can largely be attributed to the efforts of EMEA and Asian investors.
Hedge Funds and Real Money Alignment: Intriguingly, the chief regional "biases" this year echo across both Hedge Funds and Real Money, indicating a potentially coordinated investment approach or shared sentiment.
BofA’s examination underscores the complexities of this year's regional flows behind the USD's performance. While 2022 was marked by a uniform sentiment, 2023 presents a mosaic of regional perspectives, making the prediction and understanding of currency trajectories a nuanced affair. Investors need to remain vigilant to the intricacies of regional flows to navigate the evolving landscape effectively.