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Oct 21 - 09:55 AM

USD: No Plaza For The USD - BofA

By eFXdata  —  Oct 21 - 09:20 AM

Bank of America Global Research sees no Plaza for the USD, as it is fully consistent with fundamentals and the Fed's policy reaction function.

"As the USD has reached a 20-year high in nominal terms and a 40-year high in real terms, many investors are asking whether a Plaza Accord intervention is around the corner. We believe this is highly unlikely," BofA notes. 

"The USD strength is fully consistent with fundamentals. We have been arguing that we can explain the strong USD based on relative monetary policies and rate differentials, the different sources of high inflation-overheating vs. negative shocks-terms of trade shocks and different exposure to the energy crisis, geopolitics, risk aversion and weak growth in China. 

The strong USD is consistent with the Fed's policy reaction function. The Fed had been hawkish this year, making it clear that policies will remain tight for as long as it takes to bring inflation down, even if it takes a recession to do so. Pushing at the same time against USD strength could send conflicting messages," BofA adds. 

Source:
BofA Global Research

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