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May 26 - 12:55 PM

USD: Risk Sentiment The Latest Driver For USD - BofA

By eFXdata  —  May 26 - 11:00 AM

Bank of America Global Research discusses the USD outlook and maintains a bullish bias through the summer.

"The correlation of the USD with risk sentiment has returned. For most of the year, the USD strengthened because of: the Fed hawkish pivot and more aggressive repricing in rates, in response to the highest core inflation in G10 and an extremely tight labor market; and an improvement of the US terms of trade compared with a substantial deterioration in the case of Japan and the Eurozone, on the back on the sharp increase in energy prices. As a result, the USD was appreciating with respect to all other G10 currencies, before May," BofA notes. 

"However, so far this month, risk sentiment has taken over as the main USD driver, with risk-off leading to both lower yields and a stronger USD, with the exception against JPY and CHF, the other safe-haven G10 currencies. As the market starts pricing a stagflation scenario, the outlook for risk assets remains challenging, which is likely to keep supporting the USD," BofA adds. 

Source:
BofA Global Research

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