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May 20 - 12:55 PM

BofA: G10 FX as a Passive Investment Strategy in a Low Volatility Environment

By eFXdata  —  May 20 - 10:45 AM


Bank of America (BofA) discusses the dynamics of G10 foreign exchange as a passive investment strategy amid the current climate of low volatility. The commentary reflects on the early promise of significant currency movements against the USD, which has transitioned into a period of market stagnation with minimal currency fluctuations.

Key Points:

  • Initial Currency Movements: The year began with notable declines in major currencies against the USD, averaging a 4.2% drop, which initially suggested a volatile year ahead.
  • Current Market Stability: Contrary to earlier movements, the quarter to date has seen virtually no change in the average currency value versus the USD, reflecting a period of compressed volatility and market fatigue.
  • Influence of Geo-political Events: Temporary spikes in volatility due to geo-political events have subsided, returning the USD to its prior levels and contributing to the current low volatility.
  • Carry as Dominant Theme: Despite the low volatility, BofA highlights that the financial and macroeconomic backdrop supports the idea that carry trades should remain a primary investment strategy in the currency market.
  • Market Convergence: With the market increasingly aligning with BofA's less constructive view on the USD (except against JPY), there's a growing likelihood of the USD weakening if US data continues to underperform, challenging the narrative of US exceptionalism.


The current environment in the G10 FX market suggests that adopting a passive investment strategy may be prudent due to the prevailing low volatility and the market's convergence towards a more balanced view of the USD relative to other major currencies. Investors might consider focusing on carry trades, taking advantage of the differential interest rates across countries, as the primary strategy during this period of market stability.

BofA Global Research


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